SOURCE: Ithaca Energy Inc

March 26, 2013 03:00 ET

Ithaca Energy Inc Announces Full Year Results

ABERDEEN, SCOTLAND--(Marketwire - Mar 26, 2013) - Ithaca Energy Inc. (TSX VENTURE: IAE) (LSE: IAE)


Ithaca Energy Inc. (TSX VENTURE: IAE) (LSE: IAE)

Not for Distribution to U.S. Newswire Services or for Dissemination in
the United States

                         Ithaca Energy Inc.

     2012 Financial Results, Reserves Update & Q1-2013 Production

Ithaca Energy Inc. (TSX VENTURE: IAE) (LSE: IAE) announces its
financial results for the twelve months ended December 31, 2012, the
Company's independently evaluated reserves as of the same date and a
Q1-2013 production update.

HIGHLIGHTS

Financial

- 2012 cashflow from operations increased 50% to $90.3 million
(2011: $60.2 million) - cashflow per share of $0.35 (2011: $0.23).

- 2012 net earnings increased 160% to $93.4 million (2011: $35.9
million) - earnings per share of $0.36 (2011: $0.14).

- 2012 average realised oil price of $112.76/bbl (2011: $111.46/
bbl) including a realised hedging gain in the year of $2.61/bbl.

- Cash balance at year end of $31.4 million and $430 million
senior borrowing base facility undrawn at the year end - fully funded
for execution of the business plan.

- UK tax allowances pool of $416 million at year end.

- Approximately 2 million barrels of 2013-2014 oil production
hedged at a weighted average price of ~$109/bbl (approximately 40% puts
/ 60% Swaps).

Reserves

- Net proved and probable ("2P") reserves increased to 51.9 MMboe
at 31 December 2012 (2011: 50.3 MMboe), as independently assessed by
the Company's independent reserves auditor, Sproule International
Limited ("Sproule").

- Net 2P reserves post-tax net asset value ("NAV") increased by
~40% to over $1 billion.

- The Sproule reserves assessment reflects the inclusion of the
Cook and MacCulloch field interests being acquired from Noble Energy
Inc. ("Noble") and an upward revision to the Greater Stella Area
reserves, partially offset by actual production during 2012 and
relinquishment of the Carna discovery. No material revisions to Athena
2P reserves.

Operational & Corporate

- Total average net export production in 2012 increased 34% to
approximately 5,862 barrels of oil equivalent per day ("boepd") (2011:
4,370 boepd), including production from the assets being acquired from
Noble (effective January 1, 2012).

- Start-up of the Athena field represents the third major
development delivered by the Company. Strong operational performance
by the BW Athena floating production, storage and offloading vessel has
resulted in a field uptime in excess of 95% since completion of
start-up and commissioning operations in June 2012. The field
continues to produce "dry" oil at a gross daily rate of 10,000 to
11,000 barrels of oil per day ("bopd"), 2,250 to 2,475 bopd net to
Ithaca.

- Field Development Plan ("FDP") approval was received from the
Department of Energy and Climate Change ("DECC") for the Ithaca
operated Stella and Harrier fields in April 2012. A full Greater
Stella Area development update is provided in the 2012 Management
Discussion & Analysis.

- Agreements were executed in October 2012 to acquire from Noble
an additional 12.885% interest in the Cook field (acquisition completed
February 2013) and a 14% interest in the MacCulloch field, further
broadening the Company's producing asset portfolio.

- Ithaca was awarded two operated licences by the DECC in the 27th
UK Licence Round.

INTENDED VALIANT ACQUISITION

On March 1, 2013, the Company announced the intended acquisition of
Valiant Petroleum plc ("Valiant") for a total enterprise value of
approximately $459 million. The Valiant Board is recommending approval
of the offer to its shareholders and the transaction is scheduled to
close around mid April 2013.

The acquisition is anticipated to be highly accretive, materially
increasing the Company's production, reserves and cashflow from
operations, establishing Ithaca as a leading mid-cap North Sea oil and
gas operator.

PRODUCTION Q1-2013

The Company estimates net export production to be in excess of 6,500
boepd, 90% oil, in the upper range of that anticipated by the 2013
annual guidance range of 6000 to 6,700 boepd.

Iain McKendrick, Chief Executive Officer, commented:"These strong results
together with the announced Valiant acquisition
demonstrate the Company's ability to execute upon its strategy for
growing shareholder value though the delivery of development and
acquisition led growth."

A presentation will be available on the Company's website today
summarising the 2012 financial results and operational update covered
in the Management's Discussion and Analysis.

Notes:

The Company's petroleum and natural gas reserves (the "reserves") were
independently evaluated by Sproule ( www.sproule.com ) (the "Sproule
Report") in accordance with the Canadian Oil and Gas Evaluation
Handbook ("COGEH") reserves definitions and evaluation practices and
procedures as specified by National Instrument 51-101 ("NI 51-101").
The evaluation uses Sproule's forecast prices and costs at December 31,
2012.

The Company's Form 51-101 F1 Statement of reserves data for the year
ended December 31, 2012 ("Statement of Reserves Data"), which includes
the disclosure and reports relating to reserves data and other oil and
gas information along with the Form 51-101F2 Report on Reserves Data by
Sproule and Form 51-101F3 Report of Management and Directors on
Reserves Data and Other Information are contained in the Company's
Annual Information Form for the year ended December 31, 2012 (the
"AIF") which is available for review at  www.sedar.com .

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 industry.

The term "boe" may be misleading, particularly if used in isolation. A
boe conversion 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,
utilizing a conversion ratio at 6 Mcf: 1 bbl may be misleading as an
indication of value.

Further details on the above are provided in the Consolidated Financial
Statements, Management's Discussion and Analysis and AIF for the year
ended December 31, 2012, which have been filed with securities
regulatory authorities in Canada. These documents are available on the
System for Electronic Document Analysis and Retrieval at  www.sedar.com 
and on the Company's website:  www.ithacaenergy.com .

Enquiries:

Ithaca Energy
Iain McKendrick, CEO              +44 (0) 1224 650 261
 imckendrick@ithacaenergy.com 
Graham Forbes, CFO                +44 (0) 1224 652 151
 gforbes@ithacaenergy.com 

Cenkos Securities plc
Jon Fitzpatrick                   +44 (0) 207 397 8900
 jfitzpatrick@cenkos.com 
Neil McDonald                     +44 (0) 131 220 6939
 nmcdonald@cenkos.com 

RBC Capital Markets
Tim Chapman                       +44 (0) 207 653 4641
 tim.chapman@rbccm.com 
Matthew Coakes                    +44 (0) 207 653 4871
 matthew.coakes@rbccm.com 

FTI Consulting
Billy Clegg                       +44 (0) 207 269 7157
 billy.clegg@fticonsulting.com 
Edward Westropp                   +44 (0) 207 269 7230
 edward.westropp@fticonsulting.com 
Georgia Mann                      +44 (0) 207 269 7212
 georgia.mann@fticonsulting.com 

About Ithaca Energy:

Ithaca Energy Inc. (TSX VENTURE: IAE) (LSE: IAE) and its wholly owned
subsidiary Ithaca Energy (UK) Limited ("Ithaca" or "the Company"),is an
oil and gas operator focused on North Sea production, appraisal and
development activities. The Company's strategy is centred on building
a highly profitable North Sea oil and gas company by maximising
production and cashflow from its existing assets, the appraisal and
development of existing discoveries on properties held by the Company
and the delivery of additional growth via acquisitions and licence
round participation.

Not for Distribution to U.S. Newswire Services or for Dissemination in
the United States

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 Ithaca Energy Inc. or its officers
with respect to various matters. When used in this announcement, 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
contained in the corporate presentation, 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 and uncertainties and other factors that may cause actual
results or events to differ materially from those anticipated in such
forward-looking statements or information. These forward-looking
statements speak only as of the date of this announcement. 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.

-ENDS-

MANAGEMENT DISCUSSION & ANALYSIS YEAR ENDED 31 DECEMBER 2012

                    2012 HIGHLIGHTS & POST YEAR END ACTIVITIES

Record annual       - 2012 cashflow from operations increased
earnings            50% to $90.3 million (2011: $60.2 million) -
                    cashflow per share $0.35 (2011: $0.23)

                    - 2012 net earnings increased 160% to $93.4
                    million (2011: $35.9 million) - earnings per share
                    $0.36 (2011: $0.14)

                    - 2012 average realized oil price of $112.76
                    / bbl (2011: $111.46 / bbl) including realized
                    hedging gain in the year of $2.61 / bbl

                    - Solid asset base with significant capital
                    investment in the year reflecting total assets of
                    $933.5 million (2011: $804.7 million)

                    - Cash balance at year end of $31.4 million
                    and $430 million senior borrowing base facility
                    undrawn at the year end

                    - UK tax allowances pool of $416 million at
                    year end

                    - Approximately 2 million barrels of 2013-14
                    oil production hedged at a weighted average price
                    of around $109 / bbl (approximately 40% puts / 60%
                    swaps)

Solid operational   - Export production increased 34% to
performance -       approximately 5,862 barrels of oil equivalent per
executing the       day ("boepd") (2011: 4,370 boepd), including
business plan       production from the Cook and MacCulloch field
                    interests being acquired from Noble Energy Capital
                    Limited ("Noble"), effective January 1, 2012

                    - 51.9 MMboe proved and probable ("2P")
                    reserves at end-2012, as assessed by Sproule
                    International Limited ("Sproule")

                    - Sproule post-tax net 2P asset value
                    ("NAV") of $1,045 million, up over 40%

                    - Start-up of production from the Ithaca
                    operated Athena field in May 2012, representing the
                    third major development delivered by the
                    Corporation

Greater Stella      - Field Development Plan ("FDP") approval
Area hub - moving   received from the Department of Energy and Climate
ahead               Change ("DECC") for the Ithaca operated Stella and
                    Harrier fields in April 2012

                    - All major contracts executed in 2012 to
                    deliver the start-up of production from the Greater
                    Stella Area ("GSA") production hub in 2014

                    - Fabrication of all the required subsea
                    infrastructure that is to be installed by Technip
                    is progressing according to plan

                    - "FPF-1" floating production unit
                    transferred to the Remontowa shipyard (Poland) in
                    October 2012 for completion of the modification
                    workscope by Petrofac

                    - Ensco 100 drilling rig anticipated to
                    arrive on location at the Stella field in Q2-2013

                    - UK Small Field Allowance ("SFA") tax
                    relief increased and its application extended in
                    March 2012, resulting in both Stella and Harrier
                    being eligible for the full $240 million field
                    benefit in addition to Athena

                    - Appraisal of the Hurricane discovery
                    completed in September 2012 - hydrocarbons in two
                    reservoir intervals identified and a successful
                    drill stem test performed

Growing             - Intended acquisition of Valiant Petroleum
shareholder value   plc ("Valiant") for a total enterprise value of
via acquisitions    approximately $459 million announced March 2013 -
and licence rounds  the Valiant Board is recommending approval of the
                    offer to its shareholders and the transaction is
                    scheduled to close mid-April 2013

                    - Further broadening of the producing asset
                    portfolio - agreements executed in October 2012 to
                    acquire an additional 12.885% interest in the Cook
                    field (acquisition completed February 2013) and a
                    14% interest in the MacCulloch field from Noble
                    ("the Noble Assets")

                    - Awarded two operated licences by the DECC
                    in the 27th UK Licence Round

  SUMMARY STATEMENT OF INCOME

                                                   2012   2011     %

     Average Brent Oil Price            $/bbl       112    111     1%

     Average Realised Oil Price(1)      $/bbl       110    111    -1%

     Revenue                               M$     170.5  129.1    32%

     Cost of Sales - excluding DD&A        M$    (78.9) (63.7)    24%

     G&A                                   M$     (4.3)  (4.6)    -7%

     Bank Charges, Interest, etc.          M$     (0.9)  (0.7)    29%

     Realised Derivatives Gain / (Loss)    M$       3.9    0.1

     Cashflow From Operations              M$      90.3   60.2    50%

     DD&A                                  M$    (56.2) (31.4)    79%

     Other Non-Cash Costs                  M$     (4.9)    8.3

     Profit Before Tax                     M$      29.2   37.1   -21%

     Deferred Tax Credit / (Charge)        M$      64.2  (1.2)

     Profit After Tax                      M$      93.4   35.9  160%

     Earnings Per Share                 $/Sh.      0.36   0.14  157%

     Cashflow Per Share                 $/Sh.      0.35   0.23   52%

      (1) Average realized price before hedging

    SUMMARY BALANCE SHEET

    M$                              2012     2011

    Cash & Equivalents                31      112

    Other Current Assets             198       99

    PP&E                             663      593

    Other Non-Current Assets          41        1

    Total Assets                     934      805

    Current Liabilities            (206)    (102)

    Asset Retirement Obligations    (53)     (39)

    Deferred Tax Liabilities        (62)    (127)

    Other Non-Current Liabilities    (7)     (29)

    Total Liabilities              (328)    (297)


    Net Assets                       606      507

    Share Capital                    431      430

    Other Reserves                    20       17

    Surplus / (Deficit)              154       61

    Shareholders Equity              606      507



                      CORPORATE STRATEGY

                      Ithaca Energy Inc (the "Corporation" or "Ithaca"
                      or the "Company") is an oil and gas operator
                      focused on North Sea production, appraisal and
                      development activities.

                      Ithaca's strategy is to grow shareholder value by
                      building a highly profitable 25kboe/d North Sea
                      oil and gas company. The execution of this plan
                      is centred on:

                      - Maximising production and cashflow from
                      its existing assets

                      - Delivering material growth by appraising
                      and developing existing hydrocarbon discoveries

                      - Continuing to increase and diversify the
                      Company's portfolio and cashflows through
                      acquisitions

                      CONSOLIDATION

                      The consolidated financial statements of the
                      Corporation 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") and Ithaca Minerals North Sea
                      Limited ("Ithaca Minerals") and its associates
                      FPU Services Limited ("FPU") and FPF-1 Limited
                      ("FPF-1").

                      All inter-company transactions and balances have
                      been eliminated on consolidation. A significant
                      portion of the Corporation's North Sea oil and
                      gas activities are carried out jointly with
                      others. The consolidated financial statements
                      reflect only the Corporation's proportionate
                      interest in such activities.

                      RESERVES

Solid 2P reserves     - At 31 December 2012, the Corporation's
base, with            2P reserves were 51.9MMboe, as independently
increasing            assessed by Sproule (including 1.4MMbbl from the
proportion of         yet to complete MacCulloch field acquisition)
reserves associated
with producing        - 15.4MMboe of the Corporation's total 2P
assets                reserves are associated with producing assets, an
                      increase of 83% on the end-2011 position. This
                      increase is driven by start-up of the Athena
                      field and the acquisition of the Noble Assets.

                      - The end-2012 post-tax NAV of 2P reserves
                      estimated by Sproule increased by over 40% to
                      $1,045 million whilst pre-tax NAV of 2P reserves
                      increased by approximately 33% to $1,442 million

                      - The movement in 2P reserves between
                      end-2011 and end-2012 is summarised in the table
                      below. The Corporation has elected to relinquish
                      the licence containing the Carna gas discovery
                      following completion of a detailed technical and
                      commercial evaluation since the additional equity
                      and operatorship was transferred to the
                      Corporation, for minimal consideration, by
                      Centrica North Sea Gas Limited ("Centrica") in
                      Q1-2012

                      2P Reserves                           MMboe

                      Opening Reserves - December 31, 2011*  50.3

                      Acquisitions - Cook & MacCulloch        3.6

                      Production                             -2.2

                      Relinquishments - Carna                -1.7

                      Positive Revisions (Mainly Stella)      1.9

                      Closing Reserves - December 31, 2012   51.9

                      * Opening reserves exclude the additional 16%
                      equity in the Carna gas discovery transferred
                      from Centrica during the year

                          PRODUCTION & OPERATIONS UPDATE

                          2012 PRODUCTION

34% increase in annual    Ithaca's total net export production in 2012
production delivered in   was 5,862 boepd, representing an increase of
2012, with the overall    approximately 34% on 2011 production (2011:
producing asset base      4,370boepd).
enlarged to eight
fields                    Production in the year was derived from the
                          operated Athena, Beatrice, Jacky and Anglia
                          fields and the non-operated Cook, Broom and
                          Topaz fields. Total 2012 production also
                          includes the contribution from the Noble
                          Assets, the acquisition of which was
                          announced in October 2012, effective 1
                          January 2012. The transfer of the Cook
                          interest was completed in February 2013. The
                          transfer of the MacCulloch interest is yet to
                          complete and represents approximately 10% of
                          total 2012 production.

                          The material increase in production delivered
                          in 2012 was primarily attributable to the
                          start-up of the Athena field in May 2012 and
                          acquisition of the Noble Assets.

                          Planned maintenance shutdowns during the
                          year, most notably on the Shell operated
                          Anasuria floating production, storage and
                          offloading vessel ("FPSO") that is the host
                          facility for the Cook field, reduced overall
                          net production performance by approximately
                          500 boepd.

                          As a result of the Athena field start-up and
                          the acquisition of the Noble Assets, the
                          Corporation has increased its producing asset
                          base by a further three fields during the
                          year, establishing a solid cash generative
                          asset base of eight fields.

Q1-2013 production in     Q1-2013 PRODUCTION UPDATE
line with forecast
performance               With less than a week remaining in the
                          quarter, Ithaca's total net export production
                          in Q1-2013 is forecast to be in excess of
                          6,500 boepd. Production for the quarter was
                          in the upper range of that anticipated by the
                          Corporation as part of the annual 2013
                          guidance issued in January 2013 of 6,000 to
                          6,700 boepd. As anticipated, there was no
                          contribution from the MacCulloch field in the
                          quarter (MacCulloch representing
                          approximately 5% of total forecast 2013
                          production).

                          DEVELOPMENTS UPDATE

Athena field achieves     ATHENA
the core objectives of
production                Following completion of the BW Athena FPSO
diversification and       conversion and mobilisation operations by BW
cashflow generation,      Offshore, start-up of production from the
facilitating continued    Athena field commenced in late May 2012.
growth of the Company     This represents the third major development
                          delivered by the Corporation, further
                          underlining the Corporation's ability to
                          execute upon its business model of driving
                          forward the monetisation of reserves
                          identified following appraisal success.

                          Since the completion of post start-up
                          commissioning activities, production from the
                          field has been stable at a gross daily rate
                          of between 10,000 and 11,000 bopd, 2,250 to
                          2,475 bopd net to Ithaca. Strong operational
                          performance by the BW Athena has resulted in
                          a vessel uptime in excess of 95% following
                          the start-up period.

                          The field continues to produce "dry" oil,
                          with nearly 3MMbbl having been produced from
                          the field to date, 0.675MMbbl net to Ithaca.

                          Reservoir performance to date, including the
                          continued production of dry oil, provides a
                          positive signal for the longer term potential
                          of the field. The timing of water
                          breakthrough, along with the efficiency of
                          the sweep of oil through the reservoir
                          assisted by water injection, will be key to
                          predicting the ultimate field production
                          profile.

                          Athena's 2P reserves remain materially
                          unchanged following completion of the
                          end-2012 Sproule reserves evaluation, despite
                          initial production rates from the field being
                          lower than originally forecast. Taking into
                          account the latest dynamic field data and
                          actual oil production to date, Sproule's
                          end-2012 2P reserves are within approximately
                          5% of that anticipated prior to start-up of
                          the field. Total gross 2P remaining reserves
                          at 31 December 2012 are estimated by Sproule
                          to be 22.6 MMboe, 5.1MMboe net to Ithaca.

Clear hub strategy        GREATER STELLA AREA
focused on driving
significant value from    The GSA strategy is driven by monetisation of
the GSA infrastructure    2P reserves of over 30MMboe net to Ithaca.
                          The infrastructure that will be installed as
                          part of the GSA development also presents the
                          opportunity to create significant additional
                          value from within the Corporation's portfolio
                          and from third parties through the tie-back
                          of the many undeveloped discoveries that lie
                          in the catchment area of the GSA hub

                          Delivering First Hydrocarbons

                          Approval of the joint Stella and Harrier FDP
                          was received from the DECC in April 2012.
                          The development is centred on the tie-back of
                          subsea wells to the FPF-1 floating production
                          facility and the export of processed
                          hydrocarbons to shore via nearby oil and gas
                          transportation pipelines. To maximise
                          initial oil and condensate production and
                          fill the gas processing facilities on the
                          FPF-1, four Stella wells are planned for the
                          start-up of production from the hub. Further
                          wells on Stella and Harrier, plus other
                          potential targets, including Hurricane, will
                          then be drilled post first hydrocarbons from
                          Stella to maintain the gas processing
                          facilities on plateau.

FPF-1 located in          FPF-1 Modification Works
Remontowa yard in
Gdansk, Poland, for       A lump sum incentivised contract for
completion of the         modification of the FPF-1 was awarded by the
modifications work        GSA co-venturers to Petrofac in October 2011.
programme                 During 2012, the primary focus of the
                          Petrofac work programme has been on
                          completion of detailed design studies, award
                          of the yard contract for the FPF-1
                          modification works and preparation and
                          transfer of the vessel to the selected
                          modifications yard.

                          Based on the results of the design studies
                          completed in 2012, the decision was made by
                          Petrofac to install new processing equipment
                          on the vessel, rather than partially re-use
                          the existing facilities. This is to ensure
                          the delivery of a higher quality vessel; one
                          that is capable of achieving the high
                          operational uptime performance that is
                          stipulated in the Duty Holder contract under
                          which Petrofac will operate the FPF-1 once it
                          is deployed in the field. Preparation of the
                          vessel for completion of the modifications
                          work was undertaken in Teeside, UK, with all
                          the redundant processing equipment being
                          removed from the main deck of the vessel.

                          Petrofac awarded the contract for completion
                          of the FPF-1 modification works in 2012 to
                          the Remontowa shipyard in Gdansk, Poland,
                          which is located approximately 10 days towing
                          time from the Stella field. The FPF-1 was
                          moved to the yard in Q4-2012.

                          Work is currently ongoing on the vessel to
                          prepare for its transfer to dry dock in
                          Q2-2013 for the marine systems workscope to
                          be completed, following which the new
                          topsides processing plant will be installed
                          on the main deck.

Arrival of Ensco 100      Drilling Programme
drilling rig now
anticipated Q2-2013 due   A contract was signed with Ensco Offshore UK
to delays in completion   Limited ("Ensco") in November 2011 for use of
on current works being    the Ensco 100 heavy duty jack-up drilling rig
undertaken by another     on the Stella and Harrier development
operator using the rig    drilling campaign; 5 firm wells and 3
                          optional wells, providing flexibility in
                          terms of the number of wells and sequence of
                          drilling operations in the GSA.

                          A delay in completion of the work currently
                          being undertaken by another North Sea
                          operator using the Ensco 100 rig means that
                          the rig is now anticipated to arrive on
                          location at Stella in Q2-2013, rather than
                          the previously indicated time of late
                          Q1-2013. This delay, which is unrelated to
                          the performance of the rig itself, is outside
                          Ithaca's control and is a routine schedule
                          risk associated with the commencement of any
                          drilling campaign. Based on the commencement
                          of the drilling campaign in Q2-2013, the four
                          well programme on Stella (drill, complete and
                          clean-up test) prior to start-up of
                          production from the hub is anticipated to
                          complete in the early part of Q2-2014.

Technip on schedule for   Subsea Infrastructure Construction &
execution of main         Installation Activities
subsea infrastructure
works in 2013             An Engineering, Procurement, Installation and
                          Construction ("EPIC") contract was awarded to
                          Technip in July 2012 for completion of the
                          major subsea works required to deliver first
                          hydrocarbons from the GSA hub. Engineering
                          for the subsea infrastructure has been
                          completed and the subsea facilities
                          construction programme is progressing as
                          planned and remains on target for the main
                          installation works to be performed in 2013.

                          - Manufacture of all the required
                          10-inch linepipe for the development has been
                          completed and the application of coatings and
                          delivery of the pipe to Technip's Evanton
                          spool base in NE Scotland, for subsequent
                          welding, is nearing completion.

                          - Construction of all six subsea
                          structures required to deliver first
                          hydrocarbons are advancing well at Global
                          Energy Group's Isleburn facilities at
                          Invergordon and Nigg in NE Scotland. All the
                          necessary valves that are to be fitted on the
                          structures have been delivered on time.

                          - All the flanges, fittings and
                          pipework required for subsea structures have
                          been manufactured on time and fabrication of
                          the pipeline spools is ongoing.

                          - Manufacture of the static umbilicals
                          that will connect the drill centres to the
                          FPF-1 and the flexible flowlines and risers
                          are progressing to plan.

Small Field Allowance     Small Field Allowance Benefits
changes result in
additional tax shelter    In March 2012 the UK Government announced it
available to Ithaca's     would be increasing and extending the
Stella and Harrier        application of the SFA, which shelters a
field interests           portion of net cashflows from qualifying
                          fields from the 32% Supplemental Charge. The
                          size of fields that qualify for the full SFA
                          was increased to include fields with Mid Case
                          reserves under 6.25 million tonnes
                          (approximately 45MMboe) and the tax allowance
                          available to each field was doubled from
                          approximately $120 million to $240 million.

                          The SFA changes have resulted in the Stella
                          field being eligible for the full $240
                          million allowance and the Harrier allowance
                          increasing from $120 million to the same
                          amount. These allowances imply that Ithaca
                          will shelter approximately $120 million of
                          each fields' profits from the 32%
                          Supplementary Charge.

                          Development Capital Expenditure

                          The Company's net share of remaining capital
                          expenditure prior to first hydrocarbons from
                          the GSA production hub is $385 million, which
                          is unchanged from the estimate underpinning
                          the amount announced in November 2012 and
                          reflected in all subsequent guidance. This
                          capital expenditure will be funded from the
                          Corporation's existing financial resources.

                          In light of the delayed arrival of the Ensco
                          100 drilling rig, it is anticipated that some
                          of the previously anticipated 2013 capital
                          expenditure will now be incurred in 2014. Of
                          the total capital expenditure of $385
                          million, approximately $300 million is
                          currently forecast to be incurred in 2013,
                          with the balance in the first half of 2014.

                          HURRICANE

Successful Hurricane      In September 2012, the Company successfully
appraisal well - the      completed drilling of the Hurricane appraisal
first potential bolt-on   well in Block 29/10b, which lies within the
to the GSA hub            GSA. The well was drilled using the
                          WilHunter semi-submersible rig, with Applied
                          Drilling Technologies International ("ADTI"),
                          a subsidiary of Transocean, used to manage
                          drilling operations under "turnkey" contract
                          arrangements.

                          The well identified hydrocarbons in two
                          reservoir intervals, the Eocene Rogaland
                          sandstone and the Palaeocene Andrew
                          reservoir; the latter being the main
                          producing reservoir of the Stella field.

                          Pressure data and fluid samples were
                          recovered from both intervals and a drill
                          stem test ("DST") was performed on the Andrew
                          reservoir. During the main DST flow period,
                          lasting approximately 24 hours, the Andrew
                          interval achieved an average gross flow rate
                          of approximately 17 million standard cubic
                          feet of gas per day ("MMscf/d") with
                          associated condensate of 870 bopd (52degrees
                          American Petroleum Institute "API" Gravity)
                          from a half inch choke. A gross maximum flow
                          rate of approximately 24 MMscf/d with
                          associated condensate of 1,200 bopd from a 44
                          /64-inch fixed choke was also achieved with
                          the full production potential of the well
                          being limited by surface equipment.

                          The appraisal well has been suspended for
                          future potential use as a production well for
                          the Andrew reservoir, with the capability of
                          also being used for future production from
                          the Rogaland reservoir. The integration of
                          any future Hurricane infrastructure into the
                          GSA hub can be accommodated within the
                          existing design of the FPF-1 and subsea
                          facilities.

                          A work programme, involving seismic
                          reprocessing is ongoing to assess the
                          ultimate recoverable volumes associated with
                          each of Hurricane's reservoir intervals and
                          assess the development options for the
                          field. This work is being conducted in
                          conjunction with a wider regional subsurface
                          analysis that is focused on evaluating other
                          future feeder fields for the hub. The
                          results of the Hurricane work are anticipated
                          later in 2013.

                          2012 CORPORATE ACTIVITIES

                          Acquisition of Cook & MacCulloch Field
                          Interests
Further broadening of
the producing asset       In October 2012 the Company announced that it
portfolio - acquisition   had entered into agreements with Noble Energy
of additional Cook and    Capital Limited (a subsidiary of Noble Energy
MacCulloch field          Inc., NYSE: NBL) to acquire two wholly owned
interests                 UK subsidiary companies that hold its
                          non-operated interests in two UK North Sea
                          producing fields; a 12.885% interest in the
                          Cook field and a 14% interest in the
                          MacCulloch field (the "Noble assets").

                          The Cook field acquisition was completed in
                          February 2013.Completion of the MacCulloch
                          field acquisition is still subject to
                          resolution of normal regulatory and joint
                          venture approvals, including reaching
                          agreement in respect of decommissioning costs
                          and security.

                          27th License Round

27th License Round        In October 2012 Ithaca was awarded two
Success - new appraisal   operated licenses as part of the UK 27th
opportunities             Offshore Licence Round:

                          - Block 29/5e is a joint venture
                          between Ithaca (Operator, 54.66 %), Dyas UK
                          Ltd. (25.34%) and Petrofac Energy
                          Developments UK Ltd. (20%). The Block lies
                          in the GSA, adjacent to Block 29/10b, which
                          contains the Company's recently appraised
                          Hurricane discovery. The joint venture has
                          identified a target in Block 29/5d analogous
                          to the appraised Hurricane Rogaland sand
                          interval, known as "Twister".

                          - Block 15/17b is a joint venture
                          between Ithaca (Operator, 50%) and Premier
                          Oil (UK) Ltd (50%). The block lies in the
                          Outer Moray Firth basin and is close to the
                          Ithaca operated Athena Field and Premier's
                          license interests. The Block contains four
                          undeveloped Jurassic oil discoveries, known
                          as the "Piper Isles". The Block is adjacent
                          to a number of producing oil fields, most
                          notably Piper, Saltire, Iona and Chanter.

                          The work programme for both Blocks comprises
                          the completion of technical (subsurface)
                          studies, along with development concept
                          screening analysis, to enable a decision to
                          be made within two years of the formal award
                          of each license on committing to the drilling
                          of a well on each Block thereafter.

                          Debt Facility

$430 million debt         In July 2012 the Corporation executed a fully
facility in place with    underwritten $430 million senior secured
seven international       borrowing base facility agreement with BNP
banks                     Paribas. The facility was subsequently
                          syndicated by BNP Paribas, with the over
                          subscribed syndication bringing in six other
                          leading international banks.

                          J03 Court Case

Successful conclusion     In July 2012 the Commercial Court of the High
of Jacky J03 Court        Court of Justice ruled in favour of Ithaca in
proceedings               the dispute raised by its Jacky field
                          partner, North Sea Energy (UK) Limited
                          ("NSE"), concerning drilling of the "J03"
                          development well in 2011.

                          INTENDED VALIANT PETROLEUM PLC ACQUISITION

Highly accretive          On March 1, 2013 it was announced that the
acquisition -             Boards of Ithaca and of Valiant had reached
materially increasing     agreement on the terms of a recommended
production, reserves      acquisition (the "Acquisition") under which
and cashflow              Ithaca will acquire all shares of Valiant.
                          The total acquisition price is approximately
                          $309 million, which equates to approximately
                          GBP4.75 per Valiant share. The Company will
                          also repay approximately $150 million of
                          Valiant debt / working capital, implying a
                          total enterprise value of approximately $459
                          million.

                          The Acquisition is to be financed by a low
                          interest $350 million bridge loan and
                          approximately $109 million from the issue of
                          new Ithaca shares. The bridge facility,
                          which has been agreed with BNP Paribas, the
                          Bank of Nova Scotia and Bank of America
                          Merrill Lynch, is available for 12 months,
                          however, the intention is to fold the
                          borrowing secured against the Valiant assets
                          into an enlarged borrowing base facility
                          during the year.

                          The Acquisition is anticipated to result in:

                          - The establishment of Ithaca as a mid
                          cap North Sea oil and gas operator, with 2P
                          reserves of approximately 70MMboe, of which
                          approximately 50% relates to currently
                          producing assets;

                          - A more than doubling of Ithaca's
                          current forecast 2013 production to
                          14-16kboe/d (90% oil), rising to  approximately
                          27kboe/d in 2015; and

                          - Approximately a four fold increase
                          in Ithaca's anticipated 2013 cash flow from
                          operations to $400 million, rising to over
                          $700 million in 2015.

                          The Acquisition is subject to approval by
                          Valiant shareholders and certain regulatory
                          approvals. The Valiant shareholders will
                          meet on April 2, 2013 to vote on the
                          Acquisition, with completion of the
                          transaction anticipated to be mid-April
                          2013.

           SELECTED ANNUAL INFORMATION

           Financial Highlights

           - Revenue growth though increased production from
           asset acquisitions and the bringing of the Athena
           development on stream

           - Record Earnings per Share

           - Total assets increased mainly as a result of
           significant capital investment in Athena and the GSA
           development

           - Total non-current liabilities reduced through the
           improved tax position resulting from the recognition of the
           Small Fields Allowance in the Deferred Taxation calculation

           Years Ending 31 December           2012      2011      2010
           ($'000)

           Total Revenue                   170,477   129,059   135,121

           Net Earnings                     93,399    35,868    61,930

           Total Assets                    933,505   804,674   585,441

           Total Non-Current Liabilities (122,222) (195,127)  (50,692)

           Net Earnings Per Share ($/Sh.)     0.36      0.14      0.34

           Net Earnings Per Share - Fully     0.35      0.14      0.33
           Diluted ($/Sh.)

           2010 figures have been restated following the Corporation's
           election to present all acquisitions since the IFRS
           transition date as business combinations in accordance with
           IFRS 3®. Refer to the Changes in Accounting Policies note
           below for more details.

           2012 RESULTS OF OPERATIONS

           REVENUE

Record     Revenue increased by $41.4 million in 2012 to $170.5 million
annual     (2011: $129.1 million). This was mainly driven by an
revenue    increase in oil sales volumes, partially offset by a
of $170.5  reduction in gas sales.
million
           Oil sales volumes increased primarily due to the inclusion
           of sales from the Athena, Cook and Broom fields in 2012
           (Cook and Broom acquired in H2-2011, with Athena commencing
           production in May 2012) offset by natural declines in the
           Beatrice and Jacky fields. Of the reported 5,862boepd
           production, 4,673 flows through the statement of income with
           the additional 1,189 boepd reflecting production from the
           acquisition of the Noble Assets.

           The decrease in gas sales in 2012 compared to 2011 was due
           to a reduction in Anglia and Topaz gas volumes due to
           maintenance shutdowns, partially offset by the addition of
           Cook gas sales.

           There was a small decrease in average realized oil prices
           from $111.46/bbl in 2011 to $110.15/bbl in 2012. The average
           Brent price for the year ended 2012 was $111.75/bbl compared
           to $110.86 for 2011. The Corporation's realized 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 realized oil price was nonetheless offset by a
           realized hedging gain of $2.61/bbl in 2012.

           Average Realised Price         2012   2011

           Oil Pre-Hedging        $/bbl 110.15 111.46

           Oil Post-Hedging       $/bbl 112.76 111.46

           Gas                    $/boe  39.36  43.12


           COST OF SALES

                                              2012   2011   2012  2011

                                             $'000  $'000  $/boe $/boe

           Operating Expenditure            85,478 48,295  49.74 41.32

           DD&A                             56,172 31,447  32.45 26.57

           Movement in Oil & Gas Inventory (6,601) 15,385      -     -

           Total                           135,049 95,127  78.59 81.38


           Cost of sales increased in 2012 to $135.0 million (2011:
           $95.1 million) due to increases in operating costs and
           depletion, depreciation and amortization ("DD&A"), partly
           offset by higher oil inventory.

           Operating costs increased in the year to $85.5 million
           (2011: $48.3 million) primarily due to the inclusion of
           Athena, Cook and Broom operating costs in 2012 (Cook was
           acquired midway through Q3 2011 and Broom in Q4 2011, with
           Athena commencing production in Q2 2012) as well as the
           maturing Beatrice and Jacky fields incurring higher
           maintenance and servicing costs.

           Operating costs increased to $49.74/boe in the year (2011:
           $41.32) mainly as a result of two factors. Cook operating
           costs were unusually high as a result of the field, at
           times, picking up almost 100% of the costs of the Shell
           operated Anasuria FPSO. The FPSO provides export and
           processing capability for three fields and the costs are
           shared according to oil throughput from each field. During
           the later part of 2012, both the other 2 fields suffered
           significant downtime for repair and hence Cook picked up all
           the operating costs severely impacting the operating cost/
           boe., Cook correspondingly benefits in periods where it
           suffers low uptime. The impact of picking up a higher share
           of the FPSO operating costs is expected to continue in the
           1H of 2013 before returning to normal with the return of
           production from the other FPSO feeder fields. The second
           factor increasing operating expenditure during 2012 was the
           payment of incentive payments to the Athena operator and
           offshore Athena personnel in recognition of the exceptional
           uptime delivered by the vessel since the start of
           operations.

           DD&A expense for the year increased to $56.2 million (2011:
           $31.4 million). This was primarily due to higher production
           volumes in 2012 with the addition of the Athena, Cook and
           Broom assets (Cook and Broom full year production 2012).
           The blended rate for the year has increased to $32.45/boe
           (2011: $26.57/boe).

           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, representing the majority of the rate increase.
           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 Income Statement.

           In particular, DD&A rates on Cook have been significantly
           impacted as a result of accounting for acquisitions as
           business combinations with the DD&A rate increasing from
           $10.51/boe, excluding business combination uplift, to $27.85
           /boe including the business combination uplift.

           An oil and gas inventory movement of $6.6 million was
           credited to cost of sales in 2012 (2011 charge of $15.4
           million) primarily relating to the build up of stock levels
           on Cook, Athena and Broom. 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 oil has been sold. In
           2012 more barrels of oil were produced (1,506k bbls) than
           sold (1,427k bbls) with volumes accounting for $6.4 million
           of the movement. The remainder of the credit is due to the
           change in valuation of the opening inventory barrels, which
           are valued to reflect each field's relevant sales contract,
           such movements generally following the trend in Brent price,
           with some skewing due to the mix by field.

              ADMINISTRATION & EXPLORATION & EVALUATION EXPENSES

              $'000                          2012    2011

              General & Administration      4,327   4,584

              Share Based Payments            866   1,398

              Total Administration Expenses 5,193   5,982


              Exploration & Evaluation      4,261     791

              Total                         9,454   6,773


              Total administrative expenses decreased in the year to
              $5.2 million (2011: $6.0 million) primarily due to a
              reduction in share based payment expenses as a result of
              no options being granted during 2011, therefore reduced
              amortisation expense throughout 2012, and the only
              options in 2012 being granted at the end of the year.
              This was coupled with a modest decrease in general and
              administrative ("G&A") expenses despite the overall
              growth in activity of the business.

              Exploration and evaluation expenses of $4.3 million were
              recorded in the year (2011: $0.8 million) primarily due
              to the decision not to pursue the development of the
              Carna discovery after detailed commercial and technical
              review.

              FOREIGN EXCHANGE & FINANCIAL INSTRUMENTS

              A foreign exchange gain of $1.0 million was recorded in
              2012 (2011: $0.8 million loss). The majority of the
              Corporation'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 at January 1, 2012: 1.55. USD:GBP at December
              31, 2012: 1.62 with fluctuation between 1.55 and 1.63
              during the year). This volatility was partially offset by
              foreign exchange hedges as described in the "Risks and
              Uncertainties" section below.

              The Corporation recorded a $6.7 million gain on financial
              instruments for the year ended December 31, 2012 (2011:
              $3.4 million loss). The gain was predominantly due to a
              $2.5 million increase in value of oil swaps and put
              options and a $3.7 million realized gain on commodity
              hedges, along with a $1.8 million gain on the revaluation
              of other instruments, partially offset by a $1.3 million
              loss on revaluation of contingent consideration
              liabilities, triggered by FDP approval, relating to the
              acquisition of the Stella field and Challenger Minerals
              (North Sea) Limited ("CMNSL").

              TAXATION

No UK tax     A deferred tax credit of $64.2 million was recognized in
anticipated   the year ended December 31, 2012 (2011: $1.2 million
to be         charge). This credit is a product of adjustments to the
payable in    tax charge primarily relating to the available SFA, UK
the mid-term  Ring Fence Expenditure Supplement, share based payments,
              and relief claimed for the reinvestment of disposal
              proceeds relating to the sale of assets to Petrofac GSA
              Limited and Dyas UK Limited. As noted in the Cost Of
              Sales section the deferred tax credit is increased by the
              use of accounting for acquisitions as business
              combinations.

              As a result of the above factors, profit after tax
              increased to $93.4 million (2011: $35.9 million).

              No tax is expected to be paid in the mid-term future
              relating to upstream oil and gas activities as a result
              of the $416 million tax losses available to the
              Corporation.

              CAPITAL INVESTMENTS

              $'000                               2012     2011

              Development & Production ("D&P") 139,383  342,138

              Exploration & Evaluation ("E&E")  38,188    7,752

              Other Fixed Assets                   133      705

              Total                            177,704  350,595


              Ithaca aims to maximise shareholder value through
              delivery of a lower risk growth strategy. This growth
              strategy focuses on investment in undeveloped discoveries
              as well as producing assets, which in turn allows the
              Company to maximise cashflow and production from its
              existing assets, and continue to grow and diversify the
              cashflow base via acquisitions.

              Capital expenditure on D&P assets in 2012 of $139.4
              million was primarily focused on: execution of the GSA
              development, with the main areas of expenditure being on
              the manufacture and fabrication of subsea infrastructure
              and preparation for the FPF-1 vessel upgrade and
              modification works (as described above); and, bringing
              the Athena development to first oil, with expenditure
              incurred on subsea installations for the arrival of the
              FPSO.

              Capital expenditure on E&E assets in 2012 was $38.2
              million with spending primarily focused on drilling of
              the Hurricane appraisal and work completed for the 27th
              licensing round.

              LIQUIDITY AND CAPITAL RESOURCES

Significant   $'000                    2012       2011     Increase /
investment                                                 (Decrease)
in
development   Cash & Cash            31,376    112,055       (80,679)
projects      Equivalents

              Trade & Other         173,949     89,753         84,196
              Receivables

              Inventory              15,878      8,836          7,042

              Trade & Other       (205,634)  (102,136)      (103,498)
              Payables

              Net Working Capital    15,569    108,508       (92,939)

              As at December 31, 2012, Ithaca had working capital of
              $15.6 million including a free cash balance of $31.4
              million. Available cash has been, and is currently,
              invested in money market deposit accounts with BNP
              Paribas. Management has received confirmation from the
              financial institution that these funds are available on
              demand.

              Cash and cash equivalents decreased significantly due to
              the capital investment made during 2012, primarily on the
              GSA development, with more investment, and therefore,
              payables outstanding, in the fourth quarter of 2012.
              This was partially offset by a rise in trade and other
              receivables as a result of the higher oil price at
              December 31, 2012 compared to December 31, 2011 as well
              as higher production volumes (average of 5,462 boed Q4
              2012 compared to 3,774 boed Q4 2011).

              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 Corporation assesses partners' credit
              worthiness before entering into joint venture agreements.
              The Corporation regularly monitors all customer
              receivable balances outstanding in excess of 90 days. As
              at December 31, 2012 substantially all of the accounts
              receivable is current, being defined as less than 90
              days. In the past, the Corporation has not experienced
              credit loss in the collection of accounts receivable.

              At December 31, 2012, Ithaca had unused credit facilities
              totalling $430 million (2011: $140 million). Drawdown of
              this facility has commenced in Q1 2013.

              During the year ended December 31, 2012 there was a cash
              outflow from operating, investing and financing
              activities of approximately $65 million (2011 outflow of
              $100.0 million).

              Cashflow from operations

              Cash generated from operating activities was $90.3
              million primarily due to cash generated from Athena,
              Beatrice, Jacky, Anglia, Cook and Broom operations,
              augmented in 2012 primarily due to the start up of
              Athena.

              Cashflow from financing activities

              Cash generated from financing activities was $15.0
              million primarily due to the release of restricted cash
              balances in Q4 2012.

              Cashflow from investing activities

              Cash used in investing activities was $145.5 million
              primarily due to capital expenditure on the GSA,
              including modification of the FPF-1, subsea design and
              fabrication works, appraisal well drilling on the
              Hurricane field and completion activities on the Athena
              field prior to first production in May 2012.

              The Corporation continues to be fully funded, with more
              than sufficient financial resources to cover the
              anticipated level of development capital expenditure
              commitments and to continue the pursuit of additional
              asset acquisition opportunities and exploration and
              appraisal activities on existing and newly acquired
              licenses through its existing cash balance, forecast
              cashflow from operations and its debt facility. No
              unusual trends or fluctuations are expected outside the
              ordinary course of business.

              COMMITMENTS

              $'000                    1 Year  2-5 Years 5+ Years

              Office Leases               440      1,528       65

              Other Operating Leases   12,319     17,229        -

              Exploration Licence Fees    827          -        -

              Engineering              79,431          -        -

              Rig Commitments          31,489          -        -

              Total                    124,506    18,757       65


              The engineering financial commitments relate to
              pre-development committed capital expenditure on the
              Stella and Harrier fields, as well as ongoing capital and
              operating 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
              Corporation's existing cash balance, forecast cashflow
              from operations and its undrawn debt facility.

              OUTSTANDING SHARE INFORMATION

              The Corporation'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
              United Kingdom under the symbol "IAE".

              As at December 31, 2012 Ithaca had 259,920,003 common
              shares outstanding along with 20,347,964 options
              outstanding to employees and directors to acquire common
              shares.

              In January 2012, the Corporation's Board of Directors
              granted 400,000 options at a weighted average exercise
              price of C$2.31. In October 2012, the Board of Directors
              approved the grant of 5,645,000 options at a price of
              C$1.99. Each of the options granted may be exercised over
              a period of four years from the grant date. One third of
              the options will vest at the end of each of the first,
              second and third years from the effective date of grant.

              As at March 25, 2013, Ithaca had 259,920,003 common
              shares outstanding along with 20,347,964 options
              outstanding to employees and directors to acquire common
              shares.

                                          December 31, 2012

              Common Shares Outstanding         259,920,003

              Share Price(1)                  $1.99 / Share

              Total Market Capitalisation      $517,240,806


              (1) Represents the close price on the TSX on December 31,
              2012. US$:CAD$ at par on December 31, 2012

              Q4-2012 FINANCIAL RESULTS

              Oil and gas sales revenue decreased from $54.9 million in
              Q4 2011 to $52.6 million in Q4 2012. The decrease was
              predominantly due to a smaller Cook lifting in Q4 2012
              compared to Q4 2011 as well as an expected decline in
              Beatrice and Jacky revenues. Gas volumes were also down
              on the same period in 2011 due to shutdowns (particularly
              Anglia) as well as anticipated natural decline, however,
              this was partly offset by an increase in realised gas
              prices ($43.50/boe 2012 compared to $41.11/boe 2011).

              Cost of sales increased to $52.0 million in Q4 2012 (Q4
              2011: $48.8 million). The main driver behind the increase
              was the rise in operating costs due to the inclusion of
              Athena operating expenditure (2011: nil), significant
              Cook operating expenditure in the quarter as well as the
              maturing Beatrice and Jacky fields incurring higher
              maintenance and servicing costs. In addition, DD&A
              increased primarily due to addition of Athena plus a
              small increase in rates with the blended rate for the
              quarter increasing to $34.00/bbl compared to $33.30/bbl
              in Q4 2011. These rises were however partially offset by
              a reduced movement in inventory balance of $1.4 million
              (Q4 2011: $22.6 million - particularly high due to the
              initial Cook stock movement post acquisition in Q3
              2011).




  SUMMARY OF 2012 QUARTERLY RESULTS

                                               Restated

  $'000     31 Dec 30 Sep 30 Jun 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar
              2012   2012   2012   2012   2011   2011   2011   2011

  Revenue   52,566 41,579 35,779 40,553 54,870 26,415 16,724 31,050

  Profit    45,347  4,894 30,238 12,916 13,318 16,016  2,743  3,788
  After Tax


  EPS -       0.17   0.02   0.12   0.05   0.05   0.06   0.01   0.01
  Basic

  EPS -       0.17   0.02   0.11   0.05   0.05   0.06   0.01   0.01
  Diluted


  The most significant factors to have affected the Corporation's
  results during the above quarters are fluctuation in underlying
  commodity prices and movement in production volumes. The Corporation
  has utilized 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 unrealized gains and losses due to
  movements in the oil price and USD : GBP exchange rate.

  Each of the quarters from Q4 2010 to Q3 2011 was restated following
  the Corporation's election to present all acquisitions since the IFRS
  transition date as business combinations in accordance with IFRS 3
  ®. 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 Corporation 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 amortized 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
  recognized 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 recognized 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 recognized in net earnings.

  The Corporation has classified its cash and cash equivalents,
  restricted cash, derivatives, commodity hedge and long term liability
  as held-for-trading, which are measured at fair value with changes
  being recognized 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 amortized cost. The classification of all financial
  instruments is the same at inception and at December 31, 2012.

  The table below presents the total gain / (loss) on financial
  instruments that has been disclosed through the statement of
  comprehensive income.

  $'000                                            2012     2011

  Revaluation Forex Forward Contracts              519     (510)

  Revaluation of Gas Contract                    1,368     3,099

  Revaluation of Other Long Term Liability       (232)        87

  Revaluation of Commodity Hedges                2,487   (6,159)

  Total Revaluation Gain / (Loss)                4,142   (3,483)

  Realised Gain on Commodity Hedges              3,718        70

  Realised Gain on Forex Forward Contracts         174         -

  Total Realised Gain                            3,892        70

  Total Realised / Revaluation Gain / (Loss)     8,034   (3,412)

  Contingent Consideration                     (1,295)     2,000

  Total Gain / (Loss) on Financial Instruments   6,739   (1,413)

  The following table summarises the commodity hedges entered into
  during the year.

  Derivative     Term                         Volume     Average Price
                                                bbl              $/bbl

  Oil Swaps      March 2012 - June 2013       768,800           116.07

  Oil Swaps      January 2013 - December 2013 503,800           108.67

  Put Options    May 2012 - February 2013     390,000           120.67

  Put Options    October 2012 - June 2013     300,300           111.34


  Derivative     Term                         Volume     Average Price
                                              Therms           p/therm

  Gas Swaps      January 2013 - December 2014  3,066,000         66.45


  Post year end, further hedges (~50% puts / ~50% swaps) were entered
  into for approximately 1 million barrels of production for the period
  to September 2014 at a weighted average price of $108/bbl.

  An option, exercisable in late April 2013, to swap ~ 1 million bbls
  of production over the next 12 months at over $107/bbl was also taken
  out post year end.

  The table below summarises the foreign exchange financial instruments
  in place during 2012.

  Derivative      Forward Plus

  Term            Jan 12 - Dec 12

  Value           $4million / month

  Protection Rate $1.60/GBP1.00

  Trigger Rate    $1.40/GBP1.00

  Advantage Rate  $1.58/GBP1.00


  Post year end, further instruments were entered into to hedge GBP4
  million operating costs per month for the period January 2013 -
  December 2013 at an average protection rate of $1.59/GBP1.00 and a
  trigger rate of $1.50/GBP1.00 as well as an additional GBP120 million
  in forward contracts for capital expenditure in the period Q2 2013 -
  Q1 2014 at an average rate of $1.52/GBP1.00.


              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 Corporation 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 Corporation might realize different
              results from the application of new accounting standards
              promulgated, from time to time, by various rule-making
              bodies.

              Capitalized 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 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 Cash Generating Unit ("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.

              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 recognized 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 recognized
              at fair value on the balance sheet. The Corporation'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 recognize share based payment expense, the
              Corporation 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 Corporation'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 Corporation 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 December 31, 2012, there were no changes in our
              internal control over financial reporting that occurred
              during the year ended December 31, 2012 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 Corporation adopted IFRS using a
              transition date of January 1, 2010. The financial
              statements for the year ended December 31, 2012,
              including required comparative information, have been
              prepared in accordance with International Financial
              Reporting Standards as issued by the International
              Accounting Standards Board ("IASB").

              Following the introduction of IFRS the Corporation
              initially accounted for the acquisitions of the
              non-operated interests in the Cook field and of CMNSL as
              asset acquisitions. In Q4 2011 the Company subsequently
              elected to present all acquisitions since the IFRS
              transition date as business combinations in accordance
              with IFRS 3®. This resulted in a restatement of the
              original accounting for the Cook acquisition (in Q3 2011)
              and the acquisition of gas assets from GDF (in Q4 2010)
              as shown in previous interim statements during 2011.

              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 recognized in the deferred tax
              charged through the consolidated statement of income.

              IMPACT OF FUTURE ACCOUNTING CHANGES

              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 January 1, 2013 with early
              adoption permitted. The Corporation has decided not to
              early adopt any of the new requirements.

              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 standardized meaning and therefore is
              unlikely to be comparable to similar measures presented
              by other companies. The Corporation uses this measure to
              help evaluate its performance. As an indicator of the
              Corporation'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 Corporation
              considers Cashflow from operations to be a key measure as
              it demonstrates the Corporation'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, utilizing a conversion ratio at 6 mcf: 1 bbl
              may be misleading as an indication of value.

Off Balance   The Corporation 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 December 31, 2012.

Related       A director of the Corporation is a partner of Burstall
Party         Winger LLP who acts as counsel for the Corporation. The
Transactions  amount of fees paid to Burstall Winger LLP in 2012 was
              $0.1 million (2011: $0.2 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 December 31, 2012 the Corporation had a loan
              receivable from FPF-1 Ltd, an associate of the
              Corporation, for $21.6 million (2011: $Nil) as a result
              of the completion of the GSA transactions.


             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 Corporation is dependent
             upon the production rates and oil price to fund the
             current development program.

             For additional detail regarding the Corporation's risks
             and uncertainties, refer to the Corporation's most recent
             AIF filed on SEDAR at  www.sedar.com .


             RISK                          MITIGATIONS

Commodity    The Corporation's performance In order to mitigate the
Price        is significantly impacted by  risk of fluctuations in oil
Volatility   prevailing oil and natural    and gas prices, the
             gas prices, which are         Corporation routinely
             primarily driven by supply    executes commodity price
             and demand as well as         derivatives, predominantly
             economic and political        in relation to oil
             factors.                      production, as a means of
                                           establishing a floor in
                                           realised prices.

Foreign      The Corporation is exposed to Given the increasing
Exchange     financial risks including     proportion of development
Risk         financial market volatility,  capital expenditure and
             fluctuation in interest rates operating costs incurred in
             and various foreign exchange  currencies other than the
             rates.                        United States dollar, the
                                           Corporation routinely
                                           executes hedges to mitigate
                                           foreign exchange rate risk
                                           on committed expenditure.

Debt         The Corporation is exposed to The Corporation believes
Facility     borrowing risks relating to   that there are no
Risk         drawdown of its senior        circumstances at present
             secured borrowing base        that result in its failure
             facility (the "Facility").    to meet the financial tests
             The ability to drawdown the   and it can therefore draw
             Facility is based on the      down upon its Facility.
             Corporation meeting certain
             covenants including coverage  The Corporation routinely
             ratio tests, liquidity tests  produces detailed cashflow
             and development funding tests forecasts to monitor its
             which are determined by a     compliance with the
             detailed economic model of    financial tests and
             the Corporation. There can be liquidity requirements of
             no assurance that the         the Facility.
             Corporation will satisfy such
             tests in the future in order
             to have access to the full
             amount of the Facility.

             The Facility includes
             covenants which restrict,
             among other things, the
             Corporation's ability to
             incur additional debt or
             dispose of assets.

             As is standard to a credit
             facility, the Corporation's
             and Ithaca Energy (UK)
             Limited's ("Ithaca UK")
             assets have been pledged as
             collateral and are subject to
             foreclosure in the event the
             Corporation or Ithaca UK
             defaults.

Financing    To the extent cash flow from   The Corporation has
Risk         operations and Facility        established a fully funded
             resources are ever deemed not  business plan and routinely
             adequate to fund Ithaca's      monitors its detailed
             cash requirements, external    cashflow forecasts and
             financing may be required.     liquidity requirements to
             Lack of timely access to such  maintain its funding
             additional financing, or       requirements. The
             access on unfavourable terms,  Corporation believes that
             could limit the future growth  there are no circumstances
             of the business of Ithaca. To  at present that would lead
             the extent that external       to selected divestment,
             sources of capital, including  delays to existing programs
             public and private markets,    or a default relating to the
             become limited or              Facility.
             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
             Facility may be impaired.

             A failure to access adequate
             capital to continue its
             expenditure program may
             require that the Corporation
             meet any liquidity shortfalls
             through the selected
             divestment of its portfolio
             or delays to existing
             development programs.

Third Party  The Corporation is and may in  The Corporation believes
Credit Risk  the future be exposed to       this risk is mitigated by
             third party credit risk        the financial position of
             through its contractual        the parties. All of the
             arrangements with its current  Corporation's oil production
             and future joint venture       from the Beatrice, Jacky and
             partners, marketers of its     Athena fields is sold to BP
             petroleum production and       Oil International Limited.
             other parties. The             Oil production from Cook and
             Corporation extends unsecured  Broom is sold to Shell
             credit to these parties, and   Trading International Ltd.
             therefore, the collection of   Anglia and Topaz gas
             any receivables may be         production is sold through
             affected by changes in the     contracts to RWE NPower PLC
             economic environment or other  and Hess Energy Gas Power
             conditions.                   (UK) Ltd. Cook gas is sold
                                            to Shell UK Ltd. and Esso
                                            Exploration & Production UK
                                            Ltd. The Corporation 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 Corporation 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 Corporation's properties   The Corporation has routine
Risk         will be generally held in the  ongoing communications with
             form of licenses,              the UK oil and gas
             concessions, permits and       regulatory body, DECC.
             regulatory consents            Regular communication allows
             ("Authorizations"). The        all parties to an
             Corporation's activities are   Authorization to be fully
             dependent upon the grant and   informed as to the status of
             maintenance of appropriate     any Authorization and
             Authorizations, which may not  ensures the Corporation
             be granted; may be made        remains updated regarding
             subject to limitations which,  fulfilment of any applicable
             if not met, will result in     requirements.
             the termination or withdrawal
             of the Authorization; or may
             be otherwise withdrawn.
             Also, in the majority of its
             licenses, the Corporation is
             often a joint interest-holder
             with another third party over
             which it has no control. An
             Authorization 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
             Authorization will be met.
             Although the Corporation
             believes that the
             Authorizations will be
             renewed following expiry or
             granted (as the case may be),
             there can be no assurance
             that such Authorizations will
             be renewed or granted or as
             to the terms of such renewals
             or grants. The termination
             or expiration of the
             Corporation's Authorizations
             may have a material adverse
             effect on the Corporation's
             results of operations and
             business.

             The areas covered by the
             Authorizations are or may be
             subject to agreements with
             the proprietors of the land.
             If such agreements are
             terminated, found void or
             otherwise challenged, the
             Corporation may suffer
             significant damage through
             the loss of opportunity to
             identify and extract oil or
             gas.

Operational  The Corporation is subject to  The Corporation acts at all
Risk         the risks associated with      times as a reasonable and
             owning oil and natural gas     prudent operator. The
             properties, including          Corporation takes out market
             environmental risks            insurance to mitigate many
             associated with air, land and  of these operational,
             water. All of the              construction and
             Corporation's operations are   environmental risks.
             conducted offshore in the
             UKCS; as such Ithaca is        The Corporation uses the
             exposed to operational risk    services of Sproule
             associated with weather        International Limited to
             delays that can result in a    independently assess the
             material delay in project      Corporation's reserves on an
             execution. Third parties       annual basis.
             operate some of the assets in
             which the Corporation has
             interests. As a result, the
             Corporation 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
             Corporation's control.

             There are numerous
             uncertainties in estimating
             the Corporation'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            The Corporation places
Risk         Corporation's business, there  appropriate emphasis on
             is competition with entities   ensuring it attracts and
             that may have greater          retains high quality
             technical and financial        resources to enable it to
             resources.                     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
            Corporation'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 Corporation 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 Corporation 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
            Corporation'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 Corporation's ability to raise capital;

            - the continued availability of the Facility;

            - the Corporation's acquisition strategy, the criteria
            to be considered in connection therewith and the benefits
            to be derived therefrom;

            - the completion of the Valiant Acquisition;

            - the realization of anticipated benefits from
            acquisitions and dispositions;

            - the Corporation's ability to continually add to
            reserves;

            - schedules and timing of certain projects and the
            Corporation's strategy for growth;

            - the Corporation's future operating and financial
            results;

            - the ability of the Corporation to optimize
            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
            Corporation's reserves.

            With respect to forward-looking statements contained in
            this MD&A and any documents incorporated by reference
            herein, the Corporation 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 Corporation's development plan for the Stella
            and Harrier discoveries will be implemented as planned;

            -  the completion and 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 Corporation's ability to access
            the Facility;

            -  the continued ability of the Corporation 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 Corporation'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 Corporation to fund its
            substantial capital requirements and operations;

            -  risks associated with ensuring title to the
            Corporation's properties;

            -  changes in environmental, health and safety or other
            legislation applicable to the Corporation's operations, and
            the Corporation'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
            Corporation's exploration and development drilling and
            estimated decline rates;

            -  the Corporation'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 Corporation's reliance on key operational and
            management personnel;

            -  the ability of the Corporation 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 March 25,
Reader      2013. The 2012 results have been compared to the results
Advisories  of 2011. This MD&A should be read in conjunction with the
            Corporation's consolidated financial statements as at
            December 31, 2012 and 2011 together with the accompanying
            notes and Annual Information Form ("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 .

            With respect to Ithaca's reserves disclosure, the figures
            are derived from a report prepared by Sproule, an
            independent qualified reserves evaluator, evaluating the
            reserves of Ithaca as of December 31, 2012 and forming the
            basis for the Statement of Reserves Data and Other Oil and
            Gas information of Ithaca dated March 19, 2012 (the
            "Statement"). The reserves for the South West Heather field
            included in the Statement are those estimated by the
            Company and reviewed by Sproule. In respect of the
            MacCulloch field only (representing 1.4 MMboe proved plus
            probable reserves as at the same effective date, with
            Ithaca's previously announced acquisition of such field
            interest anticipated to be completed in 2013), Ithaca
            management prepared information reviewed by a qualified
            person under AIM guidelines.

            With respect to Valiant reserves, the figures are derived
            from an Audit of Certain Reserves as at December 31, 2012
            prepared by RPS Energy Consultants Limited, an independent
            qualified reserves evaluator, dated January 24, 2013. The
            reserves estimates of Ithaca are based on the Canadian Oil
            and Gas Evaluation Handbook ("COGEH") pursuant to Canadian
            National Instrument 51-101 - Standards of Disclosure for
            Oil and Gas Activities, with references to oil referring to
            medium quality oil.

            The Ithaca reserves correspond to those in the Statement
            adjusted to reflect the increased Carna and Cook field
            equities acquired following the date of issue of the
            Statement and Ithaca management's estimate of MacCulloch
            field reserves. The reserves estimates of Valiant are based
            on the 2007 SPE/AAPG/WPC/ SPEE Petroleum Resource
            Management System which is not materially different from
            COGEH. The Valiant reserves have been adjusted to reflect
            the increased Fionn field interest being transferred to
            Valiant by Antrim Resources (N.I.) Limited.

            If a discovery is made, there is no certainty that it will
            be developed, or if it is developed, there is no certainty
            as to the timing of such development or the benefits (if
            any) which may flow to the Company. Cashflow from
            operations includes the impact of executed hedges and does
            not include non-cash items such as DD&A, revaluation of
            financial instruments, impairments of fixed assets and
            movements in goodwill, which may have a significant impact
            on the Company's results.

            Statements relating to reserves are deemed to be
            forward-looking statements, as they involve the implied
            assessment, based on certain estimates and assumptions,
            that the reserves described can be profitably produced in
            the future.




Independent Auditors' Report

To the Shareholders of Ithaca Energy Inc.

We have audited the accompanying consolidated financial statements of
Ithaca Energy Inc and its subsidiaries, which comprise the Statement of
Financial Position as at 31 December 2012 and 31 December 2011 and the
consolidated Statement of Income, Statement of Changes in Equity and
Statement of Cash Flow for the years then ended, and the related notes,
which comprise a summary of significant accounting policies and other
explanatory information.

Management's responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of
these consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal
control as management determines is necessary to enable the preparation
of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We conducted our audit in
accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those
risk assessments, the auditor considers internal control relevant to
the entity's preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity's internal control. An
audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the
consolidated financial statements.

We believe that the audit evidence we have obtained in our audit is
sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of Ithaca Energy Inc
and its subsidiaries as at 31 December 2012 and 31 December 2011 and
their financial performance and their cash flows for the years then
ended in accordance with International Financial Reporting Standards.

Chartered Accountants
"PricewaterhouseCoopers LLP"

PricewaterhouseCoopers LLP
32 Albyn Place
Aberdeen
AB10 1YL
25 March 2013

Consolidated Statement of Income
For the year ended 31 December 2012

                                               2012       2011

                                     Note   US$'000    US$'000


Revenue                                 4   170,477    129,059

Cost of Sales                           5 (135,049)   (95,127)

Gross Profit                                 35,428     33,932


Exploration and evaluation expenses    10   (4,261)      (791)

Administrative expenses                 6   (5,193)    (5,982)

Operating Profit                             25,974     27,159


Foreign exchange                              1,029      (755)

Gain/(loss) on financial instruments   23     6,739    (3,413)

Gain on asset disposal                 11       205          -

Negative goodwill                                 -     15,210

Profit Before Interest and Tax               33,947     38,201


Finance costs                           7   (4,930)    (1,521)

Interest income                                 218        434

Profit Before Tax                            29,235     37,114


Taxation - Deferred tax                21    64,164    (1,246)

Profit After Tax                             93,399     35,868


Earnings per share

Basic                                  20      0.36       0.14

Diluted                                20      0.35       0.14


No separate statement of comprehensive income has been prepared as all
such gains and losses have been incorporated in the consolidated
statement of income above.

The results above are entirely derived from continuing operations.

The notes on pages 8 to 26 are an integral part of these consolidated
financial statements.

Consolidated Statement of Financial Position
as at 31 December 2012

                                                       2012      2011

                                                    US$'000   US$'000

ASSETS


Current assets

Cash and cash equivalents                            31,374    95,545

Restricted cash                                  8        2    16,510

Accounts receivable                                 159,195    80,960

Deposits, prepaid expenses and other                 14,754     8,793

Inventory                                        9   15,878     8,836

Derivative financial instruments                24    8,251         -

                                                    229,454   210,644

Non-current assets

Long-term receivable                            26   21,551         -

Investment in associate                         13   18,337         -

Exploration and evaluation assets               10   47,390    22,689

Property, plant & equipment                     11  615,788   570,356

Goodwill                                        12      985       985

                                                    704,051   594,030


Total assets                                        933,505   804,674


LIABILITIES AND EQUITY


Current liabilities

Trade and other payables                            205,635   102,136

                                                    205,635   102,136


Non-current liabilities

Decommissioning liabilities                     15   52,834    39,382

Other long term liabilities                     16    3,018     2,785

Deferred tax liabilities                        21   62,370   126,534

Contingent consideration                        17    4,000    24,580

Derivative financial instruments                24        -     1,846

                                                    122,222   195,127


Net Assets                                          605,648   507,411


Shareholders' Equity

Share capital                                   18  431,318   429,502

Share based payment reserve                     19   20,340    17,318

Retained earnings                                   153,990    60,591

Total Equity                                        605,648   507,411


The financial statements were approved by the Board of Directors on 25
March 2013 and signed on its behalf by:

"John Summers"
Director

"Jay Zammit"
Director

The notes on pages 8 to 26 are an integral part of these consolidated
financial statements.

Consolidated Statement of Changes in Equity
For the year ended 31 December 2012


                             Share   Share Warrants  Retained  Total
                           capital   based   issued  earnings
                                   payment
                                   reserve
                           US$'000 US$'000  US$'000   US$'000 US$'000

Balance, 1 Jan 2011        422,373  11,427      311    24,723  458,834

Profit for the period            -       -        -    35,868   35,868

Total comprehensive income 422,373  11,427      311    60,591  494,702

Share based payment              -   6,351        -         -    6,351

Options exercised            1,032   (460)        -         -      572

Warrants exercised           6,097       -    (311)         -    5,786
(18(d))

Balance, 31 Dec 2011       429,502  17,318        -    60,591  507,411

Balance, 1 Jan 2012        429,502  17,318        -    60,591  507,411

Profit for the period            -       -        -    93,399   93,399

Total comprehensive income 429,502  17,318        -   153,990  600,810

Share based payment              -   3,817        -         -    3,817

Options exercised            1,816    (795)       -         -    1,021

Balance, 31 Dec 2012       431,318  20,340        -   153,990  605,648


The notes on pages 8 to 26 are an integral part of these consolidated
financial statements.

Consolidated Statement of Cash Flow
For the year ended 31 December 2012

                                           Note       2012      2011
                                                   US$'000   US$'000

CASH PROVIDED BY (USED IN):

Operating activities


Profit Before Tax                                   29,235    37,114


Adjustments for:

Depletion, depreciation and amortisation      11    56,172    31,447

Exploration and evaluation write off          10     4,261     2,791

Share based payment                            6       866     1,399

Loan fee amortisation                          7     1,087       311

Unrealised (gain)/loss on financial           23   (4,142)     3,483
instruments

Revaluation of contingent consideration       17     1,295   (2,000)

Gain on disposal                              11     (205)         -

Movement in goodwill                                     -  (15,210)

Accretion                                      7     1,777       858


Cashflow from operations                            90,346    60,193


Changes in inventory, debtors and creditors       (23,779)    43,276
relating to operating activities


Net cash from operating activities                  66,567   103,469


Investing activities


Capital expenditure                              (165,863) (206,524)

Investment in associate                       13  (18,337)         -

Expenditure on decommissioning                           -     (358)

Loan to associate                             26   (21,551)        -

Proceeds on disposal                          11     44,878        -

Settlement of contingent consideration             (15,700)        -

Changes in debtors and creditors relating to
investing activities                                 31,031   14,877


Net cash used in investing activities             (145,542)(192,005)


Financing activities

Proceeds from issuance of shares                     1,020     6,356

Decrease/(increase) in restricted cash         8    16,508  (10,202)

Derivatives                                        (2,485)   (6,508)


Net cash used in/from financing activities          15,043  (10,354)


Currency translation differences relating to         (239)   (1,146)
cash & cash equivalents


(Decrease) in cash & cash equivalents             (64,171) (100,036)


Cash and cash equivalents, beginning of             95,545   195,581
period


Cash and cash equivalents, end of period            31,374    95,545



The accompanying notes on pages 8 to 26 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". Ithaca has three wholly-owned
subsidiaries, Ithaca Energy (UK) Limited ("Ithaca UK"), Ithaca Minerals
(North Sea) Limited ("Ithaca Minerals"), both incorporated in Scotland,
and Ithaca Energy (Holdings) Limited ("Ithaca Holdings"), incorporated
in Bermuda. Ithaca also has two associates, FPU Services Limited ("FPU
Services") and FPF-1 Limited ("FPF-1"), both incorporated in Jersey.

The consolidated financial statements of Ithaca Energy Inc. for the
year ended 31 December 2012 were authorised for issue in accordance
with a resolution of the directors on 22 March 2013.

2. BASIS OF PREPARATION

The Corporation prepares its financial statements in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).

The consolidated financial statements are presented in US dollars and
all values are rounded to the nearest thousand (US$ 000), except when
otherwise indicated.

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 the wholly-owned subsidiaries Ithaca
Energy (UK) Limited, Ithaca Minerals (North Sea) Limited and Ithaca
Energy (Holdings) Limited. 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.

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.

Joint Ventures

The Corporation is engaged in oil and gas exploration, development and
production through unincorporated joint ventures. The Corporation
accounts for its share of the results and net assets of these joint
ventures as jointly controlled assets.

Revenue

Oil, gas and condensate revenues associated with the sale of the
Corporation's crude oil and natural gas are recognised when title
passes to the customer. This generally occurs when the product is
physically transferred into a vessel, pipe or other delivery mechanism.
Revenues from the production of oil and natural gas properties in which
the Corporation has an interest with joint venture partners are
recognised on the basis of the Corporation's working interest in those
properties (the entitlement method). Differences between the production
sold and the Corporation's share of production are recognised within
cost of sales at market value.

Interest income is recognised on an accruals basis and is separately
recorded on the face of the statement of income.

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 subsidiaries 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 18
(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
compensation 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
statement of financial position and statement of cash flow 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.

Analyses of the fair values of financial instruments and further
details as to how they are measured are provided in notes 23 to 25.

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 are 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 CGU 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 profit or loss 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.

Operating leases

Rentals under operating leases are charged to the statement of income
on a straight line basis over the period of the lease.

Maintenance expenditure

Expenditure on major maintenance refits or repairs is capitalised where
it enhances the life or performance of an asset above its originally
assessed standard of performance; replaces an asset or part of an asset
which was separately depreciated and which is then written off, or
restores the economic benefits of an asset which has been fully
depreciated. All other maintenance expenditure is charged to the
statement of income as incurred.

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 with early adoption permitted. Initial assessments
conclude that there should be no material impact from the adoption of
the new and amended standards on the Corporation's financial
statements. The Corporation has not decided to early adopt any of the
new requirements.

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, share based payment, 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

                                                 2012      2011
                                              US$'000    US$'000

Oil sales                                     157,146    112,806

Gas sales                                       8,586     12,428

Condensate sales                                  501        995
Other income                                    4,244      2,830

Total                                         170,477    129,059


5. COST OF SALES

                                                 2012       2011
                                              US$'000    US$'000

Operating costs                              (85,478)   (48,295)

Movement in oil and gas inventory               6,601   (15,385)

Depletion, depreciation and amortisation 11  (56,172)   (31,447)

                                            (135,049)   (95,127)


6. ADMINISTRATIVE EXPENSES

                                                 2012       2011
                                              US$'000    US$'000

General & administrative                      (4,327)    (4,584)

Share based payment                             (866)    (1,398)

                                              (5,193)    (5,982)



7. FINANCE COSTS

                                                 2012      2011
                                              US$'000   US$'000

Accretion                                 15  (1,777)     (858)

Bank charges                                  (2,004)     (352)

Loan fee amortisation                         (1,087)     (311)

Non-operated asset finance fees                  (62)         -

                                              (4,930)   (1,521)


8. RESTRICTED CASH

                                                 2012      2011
                                              US$'000   US$'000

Decommissioning security                            -    16,167

Other security                                      2       343

                                                    2    16,510


Decommissioning security in respect of the Corporation's interests in
the Anglia and Cook fields is now facility backed as opposed to cash
backed.

9. INVENTORY

                                                2012      2011
                                             US$'000   US$'000

Crude oil inventory                           15,865     8,823

Materials inventory                               13        13

                                              15,878     8,836


10. EXPLORATION AND EVALUATION ASSETS

                                                       US$'000


At 1 January 2011                                       17,832


Additions                                                7,752

Write offs/relinquishments                             (2,791)

Disposals                                                (104)


At 31 December 2011                                     22,689


Additions                                               38,188

Write offs/relinquishments                             (4,261)

Disposals                                              (9,226)


At 31 December 2012                                     47,390


Following completion of geotechnical evaluation activity, certain
licences were declared unsuccessful and certain prospects were declared
non-commercial and therefore the related expenditures of $4.3 million
were written off in the year to 31 December 2012.

Disposals in the period reflect the sale of assets to Petrofac GSA
Limited and Dyas UK Limited as detailed per note 11.

Refer to note 23 for further details of the 2011 write off.

11. PROPERY, PLANT AND EQUIPMENT

                        Development & Production Other fixed
                              Oil and Gas assets       assets    Total
                                         US$'000      US$'000  US$'000

Cost


At 1 January 2011                        281,411       1,587   282,998


Additions                                 342,138        705   342,843


At 31 December 2011                       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


DD&A


At 1 January 2011                        (22,934)    (1,104)  (24,038)


Charge for the period                    (31,054)      (393)  (31,447)


At 31 December 2011                      (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)


NBV at 1 January 2011                    258,477         483   258,960


NBV at 1 January 2012                    569,561         795   570,356


NBV at 31 December 2012                  615,262         526   615,788


Disposals in the period reflect the sale of assets to Petrofac GSA
Limited ("Petrofac") and Dyas UK Limited ("Dyas") on completion of the
Sale and Purchase Agreements ("SPAs") relating to the Greater Stella
Area. The completion of the SPAs led to an overall pre-tax gain on
disposal of $205k, as shown through the consolidated statement of
income for the year ended 31 December 2012, as well as the investment
in associates as per note 13.

12. GOODWILL

                                                        US$'000

Cost

At 1 January 2011, 31 December 2011 & 31 December 2012      985


$1.0 million represents goodwill recognised on the acquisition of gas
assets from GDF in December 2010.

As at 31 December 2012, the recoverable amount of assets acquired from
GDF was sufficiently high to support the carrying value of this
goodwill.

13. INVESTMENT IN ASSOCIATES

                                                  2012    2011
                                               US$'000 US$'000

Investments in FPF-1 and FPU services           18,337       -



Investment in associates comprises shares, acquired by Ithaca Holdings,
in FPF-1 and FPU services as part of the completion of the Greater
Stella Area transactions (refer to note 11). There has been no change
in value during the year with the above investment reflecting the
Company's share of the associates' results.

14. 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 BNPP as Lead Arranger. The loan term is up to five years
and will attract interest at LIBOR plus 3-4.5%. This Facility replaces
the previous undrawn $140 million debt facility with Lloyds Banking
Group.

The Corporation is subject to financial and operating covenants related
to the Facility. Failure to meet the terms of one or more of these
covenants may constitute an event of default as defined in the Facility
agreement, potentially resulting in accelerated repayment of the debt
obligations.

Security provided against the loan

Security provided against the loan is in the form of a floating charge
over all assets.

The Corporation is in compliance with its financial and operating
covenants.

No funds were drawn down under the Facility as at 31 December 2012.

15. DECOMMISSIONING LIABILITIES

                                             2012      2011
                                          US$'000   US$'000

Balance, beginning of period               39,382    23,652

Additions                                   9,613    15,250

Accretion                                   1,777       858

Revision to estimates                       2,062      (20)

Utilisation                                     -     (358)

Balance, end of period                     52,834    39,382

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 3.8 percent (31 December 2011: 3.9
percent) and an inflation rate of 2.1 percent (31 December 2011: 2
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 15
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.

16. OTHER LONG-TERM LIABILITIES

                                           2012      2011
                                        US$'000   US$'000

Balance, beginning of period              2,785     2,872

Revaluation in the period                   233      (87)

Balance, end of period                    3,018     2,785


On completion of the acquisition of the Beatrice Facilities on 10
November 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 retransferred. 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. The expected date
of re-transfer is likely to be more than three years in the future.

17. CONTINGENT CONSIDERATION

                                          2012     2011
                                       US$'000  US$'000

Balance, beginning of period            24,580   12,976

Additions                                    -   13,604

Revision to estimates                    1,295  (2,000)

Release                               (21,875)        -

Balance, end of period                   4,000   24,580


The contingent consideration at the end of the period relates to the
acquisition of the Stella field and is payable upon first oil.

The release of $21.9m reflects the consideration paid ($15.7 million)
upon Stella and Harrier Field Development Plan approval as well as a
transfer of part of the liability to Petrofac on completion of the
Greater Stella Area transactions (see note 11).

18. SHARE CAPITAL

                                             No. of ordinary   Amount
Authorised share capital                                000   US$'000

At 1 January 2012 and 31 December 2012            Unlimited         -


(a) Issued


The issued share capital is as follows:


Issued                                    Number of common     Amount
                                                    shares    US$'000

Balance 1 January 2011                        255,789,464     422,373

Issued for cash - options exercised               874,997         572

Issued for cash - warrants exercised            2,500,000       5,786

Transfer from Share based payment reserve on            -         460
options exercised

Transfer from Warrants issued on warrants               -         311
exercised

Balance 31 December 2011                      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


Capital Management

The Corporation's objectives when managing capital are:

- to safeguard the Corporation's ability to continue as a going
concern;

- to maintain balance sheet strength and optimal capital structure,
while ensuring the Corporation's strategic objectives are met; and

- to provide an appropriate return to shareholders relative to the risk
of the Corporation's underlying assets.

Capital is defined as shareholders' equity. Shareholders' equity
includes share capital, share based payment reserve, warrants issued,
retained earnings or deficit and other comprehensive income.

                                                    2012        2011
                                                 US$'000     US$'000

Share capital                                    431,318     429,502

Share based payment reserve                       20,340      17,318

Warrants issued                                        -           -

Retained earnings                                153,990      60,591

Shareholders' Equity                             605,648     507,411


The Corporation maintains and adjusts its capital structure based on
changes in economic conditions and the Corporation's planned
requirements. The Board of Directors reviews the Corporation's capital
structure and monitors requirements. The Corporation may adjust its
capital structure by issuing new equity and/or debt, selling and/or
acquiring assets, and controlling capital expenditure programs.

The Corporation monitors its capital structure using the debt-to-equity
ratio and other benchmark measures at the consolidated group level.

                                                    2012        2011
                                                 US$'000     US$'000

Debt                                                   -           -

Equity                                           605,648     507,411


Debt as a % of equity                                N/A         N/A


(b) Stock options

In the quarter ended 31 March 2012, the Corporation's Board of
Directors granted 400,000 options at a weighted average exercise price
of $2.28 (C$2.31).

In the quarter ended 31 December 2012, the Corporation's Board of
Directors granted 5,645,000 options at a weighted average exercise
price of $2.03 (C$1.99).

The Corporation's stock options and exercise prices are denominated in
Canadian Dollars when granted. As at 31 December 2012, 20,347,964 stock
options to purchase common shares were outstanding, having an exercise
price range of $0.20 to $2.70 (C$0.25 to C$2.69) 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:

                           31 December 2012        31 December 2011
                                     Wt. Avg                  Wt. Avg
                            No. of   Exercise       No. of   Exercise
                           Options     Price*      Options     Price*

Balance, beginning of   17,506,839      $1.66   20,146,003      $1.61
period

Granted                  6,045,000      $2.05      260,000      $1.99

Forfeited / expired    (2,448,333)      $3.42  (2,024,167)      $2.29

Exercised                (755,542)      $1.26    (874,997)      $0.61

Options                 20,347,964      $1.63   17,506,839      $1.66


* 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 31 December 2012

                                 Options Outstanding
                                     Wt. Avg      Wt. Avg
Range of                   No. 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


The following is a summary of stock options as at 31 December 2011



                                Options Outstanding
                                    Wt. Avg      Wt. Avg
Range of                    No. of     Life     Exercise
Exercise Price             Options  (Years)       Price*


$3.65                    2,165,000      0.1        $3.65
(C$3.65)

$2.22-$2.70              5,050,000      3.0        $2.23
(C$2.25-C$2.69)

$1.49-$1.79              5,311,667      2.0        $1.55
(C$1.54-C$1.85)

$0.20-$0.81              4,980,172      1.8        $0.56
(C$0.25-C$0.87)

                        17,506,839      0.5        $1.72

                                Options Exercisable
                                    Wt. Avg      Wt. Avg
Range of                    No. of     Life     Exercise
Exercise Price             Options  (Years)        Price*


$3.65                    2,165,000      0.1         $3.65
(C$3.65)

$2.22-$2.86              1,663,330      3.0         $2.22
(C$2.25-C$2.70)

$1.49-$1.79              2,048,329      1.8         $1.57
(C$1.54-C$1.85)

$0.20-$0.81              3,904,548      1.8         $0.49
(C$0.25-C$0.87)

                         9,781,207      1.6         $1.71


(c) Share based payments

Options granted are accounted for using the fair value method. The
compensation cost during the year ended 31 December 2012 for total
stock options granted was $3.8 million (2011: $6.4 million). $0.9
million was charged through the statement of income for share based
payment for the year ended 31 December 2012, being the Corporation's
share, after cut back to joint venture partners, of share based payment
chargeable through the statement of income. 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:

                               2012    2011

Risk free interest rate       0.40%   1.20%

Expected stock volatility       74%     97%

Expected life of options    3 years 3 years

Weighted Average Fair Value   $1.08   $1.68


(d) Gemini Agreement

In September 2006 Gemini Oil & Gas Fund 11 L.P. ("Gemini") provided
non-recourse funding of $6 million. Further to a supplemental agreement
entered into in August 2008, the loan was fully repaid. Under the
supplemental agreement Gemini retained rights, under certain
circumstances relating to the Athena Field, to elect to receive
warrants to acquire up to 3,000,000 common shares at $3.00 per share
and to receive payments connected to asset sales of interests in
Athena.

On 20 September 2010, a further agreement was entered into with Gemini
whereby in exchange for and in consideration of Gemini's waiver of any
right to proceeds from the disposal of equity interest in the Athena
discovery and in substitution for any previously awarded or agreed
warrants, Ithaca Energy Inc. granted Gemini warrants to acquire up to
2,500,000 common shares in Ithaca Energy Inc. The warrants were
exercised at C$2.25 per share on 3 March 2011. The agreement terminates
all rights that Gemini has in respect of the Corporation's interests.
The total fair value attributed to warrants issued in 2010 was $0.3
million.

19. SHARE BASED PAYMENT RESERVE

                                                    2012    2011

                                                 US$'000 US$'000

Balance, beginning of period                      17,318  11,427

Share based payment cost                           3,817   6,351

Transfer to share capital on exercise of options   (795)   (460)

Balance, end of period                            20,340  17,318


20.  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.

                                                      2012        2011

Weighted av. number of common shares (basic)   259,391,234 258,350,813

Weighted av. number of common shares (diluted) 264,188,368 262,997,935


21.  TAXATION

                                                          2012     2011
                                                       US$'000  US$'000

Current tax

Current tax on profits for the year                          -        -


Deferred tax

Relating to the origination and reversal of temporary  (80,953)   1,414
differences

Relating to changes in tax rates                          1,181   1,095

Adjustment in respect of prior periods                   15,608 (1,263)
Total tax expense                                      (64,164)   1,246



The tax on the group's profit before tax differs from the theoretical
amount that would arise using the effective rate of tax applicable for
UK ring fence oil and gas activities as follows:

                                                         2012     2011
                                                      US$'000  US$'000

Accounting profit before tax                           29,235   37,112


At tax rate of 62% (2011 59.3%)                        18,126   22,008

Non taxable income                                   (48,992) (23,258)

Difference in foreign tax rates                           756    1,420

Deferred tax effect of small field allowance          (51,433)       -

Under/(over) provided in prior years                    15,816   (724)

Recognition of deferred tax assets                           -      -

Unrecognised tax losses                                   (71)    261

Change in tax rates                                      1,634  1,909

Other                                                        -  (370)

Total tax recorded in the consolidated statement of   (64,164)  1,246
income

The effective rate of tax applicable for UK ring fence oil and gas
activities in 2012 was 62% (2011:59.3%). The weighted average rate of
59.3% in 2011 was due to the increase in supplementary charge on oil
and gas activities from 20% to 32% announced on 23 March 2011 by the UK
government resulting in a 62% marginal tax rate.

The deferred tax effect of small field allowance in respect of the
Stella and Athena fields has been recognised in 2012. This will reduce
part of the future tax liability on these fields from a total rate of
62% to 30%. Ithaca has recognised this allowance based on the
assessment that the fields will generate sufficient profits to utilise
the allowance.

Deferred income tax at 31 December relates to the following:

                                2012      2011
                             US$'000   US$'000

Deferred tax liability       317,279   336,682

Deferred tax asset         (254,909) (210,148)

Net deferred tax liability    62,370   126,534


The gross movement on the deferred income tax account is as follows:

                               2012       2011
                            US$'000    US$'000

At 1 January                126,534      6,814

Acquisitions                      -    118,475

Income statement charge    (64,164)      1,246

At 31 December               62,370    126,534
                                                       Deferred
                                                         tax on
                                  Accelerated tax      business
                           Other            dep'n  combinations   Total
Deferred tax liability   US$'000          US$'000       US$'000 US$'000

At 1 January 2012        (4,328)          202,218       134,465 332,355

Charged/(credited) to      4,992          (5,811)       (7,408) (8,227)
income statement

At 31 December 2012          664          196,407       127,057 316,720




                                    Tax  Abandonment
                                 losses    provision           Total
Deferred tax assets              US$'000     US$'000         US$'000

At 1 January 2012              (199,719)     (6,101)       (205,820)

Charged/(credited) to income    (55,190)       (746)        (55,936)
statement

At 31 December 2012            (254,909)     (6,847)       (261,756)


Deferred income tax assets are recognised for the carry-forward of
unused tax losses and unused tax credits to the extent that it is
probable that taxable profits will be available in the future against
which the unused tax losses/credits can be utilised.

The UK related non-capital losses of $416 million do not expire under
UK tax legislation and may be carried forward indefinitely.

On 23 March 2011, the UK government announced that the rate of
supplementary tax applicable to North Sea oil companies would rise from
20% to 32% from 24 March 2011, resulting in an effective combined base
and supplementary tax rate of no less than 62%. Based on current
production and price assumptions and a continuing business model
whereby the Corporation reinvests capital, incurs general,
administrative and interest costs, together with the non-capital losses
available to the Corporation, Ithaca does not expect to pay trade
related cash income taxes in the short or medium term.

22.  COMMITMENTS

                                                         2012    2011
                                                      US$'000 US$'000

Operating lease commitments

Within one year                                        12,759     247

Two to five years                                      18,756     989

More than five years                                       65     309



                                                         2012    2011
Capital commitments                                   US$'000 US$'000

Capital commitments incurred jointly with other       111,747  82,521
ventures (Ithaca's share)


23.  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 31
December 2012:                               Total
                                                                  Fair
                                       Level 1 Level 2 Level 3   Value

                                       US$'000 US$'000 US$'000 US$'000

Long term liability on Beatrice              -       - (3,018) (3,018)
acquisition

Contingent consideration                     - (4,000)       - (4,000)

Derivative financial instrument asset        -   8,251       -   8,251

Assets measured at fair value in the statement of financial position
are minimal. Measurement was based on oil price at the time of
acquisition.

The table below presents the total gain / (loss) on financial
instruments that has been disclosed through the statement of net and
comprehensive income:

                                              2012    2011
                                           US$'000 US$'000

Revaluation of forex forward contracts        519    (510)

Revaluation of gas contract                 1,368    3,099

Revaluation of other long term liability    (232)       87

Revaluation of commodity hedges             2,487   (6,159)

                                            4,142   (3,483)


Realised gain on commodity hedges           3,718        70

Realised gain on forex forward contracts      174         -

                                            3,892        70


Contingent consideration                  (1,295)     2,000

Total gain/(loss) on financial instruments  6,739   (1,413)


The $2 million of associated contingent consideration relating to
licences and prospects relinquished in 2011 was also released to the
consolidated statement of income in 2011 through exploration and
evaluation expenses.

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 comprehensive income:

                                         2012      2011
                                      US$'000   US$'000

Revaluation of commodity hedges         2,487   (6,159)

Realised gain on commodity hedges       3,718        70

Total gain/(loss) on commodity hedges   6,205   (6,089)


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 entered into during the year:

Derivative   Term              Volume          Average price

Oil swaps    Mar 12 - Jun 13   768,800 bbls    $116.07/bbl

Oil swaps    Jan 13 - Dec 13   503,800 bbls    $108.67/bbl

Put options  May 12 - Feb 13   390,000 bbls    $120.24/bbl

Put options  Oct 12 - Jun 13   300,300 bbls    $111.34/bbl

Gas swaps    Jan 13 - Dec 14  3,066,000 bbls   66.45p/therm


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. No funds were drawn down under the facility at
31 December 2012.

iii) Foreign Exchange Rate Risk

The table below presents the total gain/(loss) on foreign exchange
financial instruments that has been disclosed through the statement of
income:

                                                2012    2011
                                             US$'000 US$'000

Revaluation of forex forward contracts           519   (510)

Realised gain on forex forward contracts         174       -

Total gain/(loss) on forex forward contracts     693   (510)


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
statement of financial position 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
during 2012:

Derivative Term         Value     Protection   Trigger    Advantage
                                  rate         rate       rate

Forward    Jan 12 - Dec $4        $1.60/       $1.40/     $1.58/
plus       12           million/  GBP1.00      GBP1.00    GBP1.00
                        month

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 fields is
sold to BP Oil International Limited. Oil production from Cook and
Broom 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 31 December 2012 substantially
all accounts receivables are current, being defined as less than 90
days. The Corporation has no allowance for doubtful accounts as at 31
December 2012 (31 December 2011: $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 31 December 2012, exposure is $8.3
million (31 December 2011: $Nil).

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 31 December 2012, substantially all accounts payable
are current.

The following table shows the timing of contractual cash outflows
relating to trade and other payables.

                                         Within 1 year 1 to 5 years
                                              US$'000       US$'000

Accounts payable and accrued liabilities      205,635             -

Other long term liabilities                         -         3,018

                                              205,635         3,018


24.  DERIVATIVE FINANCIAL INSTRUMENTS

                                                 2012         2011
                                              US$'000      US$'000

Oil swaps                                       2,497            -

Oil put options                                 5,667            -

Gas swaps                                          87            -

Embedded derivative                                 -      (1,336)

Foreign exchange forward contract                   -        (510)

                                                8,251      (1,846)


Refer to note 23 for details of derivative financial instruments.

In Q4 2010, the Corporation acquired an embedded derivative within an
Anglia gas sales contract, which expired during the year.

25.  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
31 December 2012, the classification of financial instruments and the
carrying amounts reported on the balance sheet and their estimated fair
values are as follows:

                                            2012                2011
                                         US$'000             US$'000
Classification                  Carrying    Fair   Carrying      Fair
                                  Amount   Value     Amount     Value

Cash and cash equivalents (Held   31,374  31,374     95,545    95,545
for trading)

Restricted cash                        2       2     16,510    16,510

Accounts receivable (Loans and   159,195 159,195     80,960    80,960
Receivables)

Deposits                            247      247        247       247


Contingent consideration        (4,000)  (4,000)   (24,580)  (24,580)

Derivative financial                  -        -    (1,846)   (1,846)
instruments (Held for trading)

Other long term liabilities     (3,018)   (3,018)   (2,785)   (2,785)

Accounts payable (Other       (205,635) (205,635) (102,136) (102,136)
financial liabilities)


26. 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                      31 Dec

                                                       2012       2011

Ithaca Energy (UK) Limited        Scotland             100%       100%

Ithaca Minerals (North Sea)       Scotland             100%        Nil
Limited

Ithaca Energy (Holdings)           Bermuda             100%        Nil
Limited


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 year ending 31
December 2012 and 31 December 2011, as well as balances with related
parties as of 31 December 2012 and 31 December 2011:

                Sales       Purchases    Accounts       Accounts
                                       receivable        payable
              US$'000        US$'000      US$'000        US$'000

Burstall 2012       -            138            -              -
Winger
LLP

         2011       -            211            -              -


A director of the Corporation is a partner of Burstall Winger LLP who
acts as counsel for the Corporation.

Loans to related Amounts owed from related parties
parties

                     2012          2011
                  US$'000       US$'000

FPF-1 Limited      21,551             -


Key management compensation

Key management includes the Chief Executive Officer, the Chief
Financial Officer, the Chief Development Officer, the Chief Technical
Officer, the Chief Production Officer and the Non-Executive Directors.
The compensation paid or payable to key management for employee
services is shown below:

                                 2012         2011
                              US$'000      US$'000

Aggregate remuneration          3,211        2,486

Company pension contributions     181          137

Share based payment             3,425            -

                                6,817        2,623


Share based payment reflects the value of options granted in 2012 as
per the Black Scholes option pricing model. This does not represent a
cash payment to key management personnel.

27. INTEREST IN JOINT VENTURES

Block         Licence Filed/Discovery     Operator Ithaca Net %
                      Name                         Interest

2/4a          P902    Broom               EnQuest  8.00

2/5           P242    Broom/SW Heather    EnQuest  8.00

11/25a        P1031   Beatrice            Ithaca   50.00

11/29a        P1392   -                   Ithaca   45.84

11/30a        P187    Beatrice            Ithaca   50.00

12/21c        P1392   Jacky               Ithaca   47.50

12/21a        P1031   Beatrice            Ithaca   50.00

12/26a        P982    Beatrice            Ithaca   50.00

12/26c        P1392   Polly               Ithaca   40.00

14/18b        P1293   Athena              Ithaca   22.50

17/4a         P1392   -                   Ithaca   50.00

21/8a         P1107   Scolty/Torphins     EnQuest  10.00

21/12c        P1617   -                   EnQuest  10.00

21/13a        P1617   Crathes             EnQuest  10.00

21/20a*       P185    Cook                Shell    28.46

29/10b        P1665   Hurricane           Ithaca   54.66

29/10a        P011    Stella/Harrier      Ithaca   54.66
(upper)

30/6a (upper) P011    Stella/Harrier      Ithaca   54.66

29/10d        P1814   Helios              Ithaca   54.66

48/18b        P128    Anglia              Ithaca   30.00

48/19b        P128    Anglia              Ithaca   30.00

48/19e        P1011   Anglia              Ithaca   30.00

49/2a         P1013   Topaz               RWE      35.00

15/17b        P1994   Piper Isles         Ithaca   50.00

29/5e         P2064   Twister             Ithaca   54.66


*Note: interest in Cook increased to 41.345% post year end. Refer to
note 28.

28. POST BALANCE SHEET EVENTS

Proposed acquisition of Valiant Petroleum plc

In March 2013, the Boards of Ithaca and Valiant announced that they had
reached agreement on the terms of a recommended acquisition (the
"Acquisition") under which Ithaca Energy Holdings (UK) Limited will
acquire the entire issued and to be issued share capital of Valiant.

The total acquisition price is approximately $309 million, which
equates to approximately GBP4.75 per Valiant share. Approximately $200
million of the consideration is payable in cash (being approximately
GBP3.07/ Valiant share) and approximately $109 million in new Ithaca
shares (approximately 57.01 million shares, equating to 1.33 Ithaca
shares per Valiant share). The Company will also repay ~$150 million
Valiant debt/working capital bringing the total enterprise value to
$459 million.

The Acquisition is anticipated to result in:

- the establishment of Ithaca as a leading mid cap North Sea oil
and gas operator, with 2P reserves of approximately 74MMboe, of which
approximately 50% relates to currently producing assets;

- a more than doubling of Ithaca's current forecast 2013
production to 14-16kboe/d (90% oil), rising to approximately 27kboe/d
in 2015; and

- approximately a four fold increase in Ithaca's anticipated 2013
cash flow from operations to $400 million, rising to over $700 million
in 2015.

The Acquisition is to be financed by a low cost $350 million bridge
loan and $109 million from the issue of new Ithaca shares.

Further details of the proposed acquisition were published on the
Company's website on March 1, 2013. The acquisition is subject to
approval by Valiant shareholders and certain regulatory approvals.

Cook acquisition

In February 2013 the Company announced that it had completed the
acquisition of a wholly owned UK subsidiary of Noble Energy Capital
Limited (a subsidiary of Noble Energy Inc., NYSE:NBL), which owns the
12.885% non-operated interest in the Cook field. Following the
transaction, the Company now holds a 41.345% in the Cook field.

Business combination

The provisional fair values of the identifiable assets and liabilities
of Cook as at the acquisition date were:

                                               Fair value
                                                  US$'000

Oil and gas properties                             70,533

Inventories                                        14,014

Trade receivables                                     142


Trade and other payables                            (653)

Deferred tax liabilities                         (41,153)

Provisions                                        (4,158)

Total identifiable net assets at fair value        38,725

Negative goodwill arising on acquisition          (1,061)

Total consideration                                37,664


The cash outflow on acquisition is as follows:

Cash paid                                        (37,664)

Net consolidated cash flow                       (37,664)








                    This information is provided by RNS
          The company news service from the London Stock Exchange

END

Contact Information