ABERDEEN, SCOTLAND--(Marketwired - Nov 11, 2013) - Ithaca Energy Inc. (
TSX VENTURE: IAE
Not for Distribution to U.S. Newswire Services or for Dissemination in
the United States
Ithaca Energy Inc.
Third Quarter 2013 Financial Results
11 November 2013
Ithaca Energy Inc. (TSX: IAE, LSE AIM: IAE) ("Ithaca" or the "Company")
announces its quarterly results for the three months ended 30 September
2013.
Highlights
- Record quarterly cashflow from operations of $77.8 million (Q3
2012: $30.1 million) - cashflow per share $0.25 (Q3 2012: $0.12)
- Record quarterly earnings of $54.1 million (Q3 2012: $4.9
million) - earnings per share $0.17 (Q3 2012 $0.02)
- Continued strong netbacks of over $70 / barrel of oil equivalent
("boe")
- Revenue of $114.1 million (Q3 2012: $41.6 million)
- Average production during the period of 11,942 boe per day
("boepd"), 96% oil, reflecting the impact of shutdowns during the
quarter
- Net drawn debt of $357 million at 30 September 2013
- UK tax allowances pool of $993 million and Norwegian tax
receivable of $88 million at 30 September 2013
- Approximately 3.4 million barrels of future 2013-14 oil
production hedged at a weighted average price of ~$102/bbl
(approximately 30% puts / 70% swaps)
Graham Forbes, Chief Financial Officer commented:"Continued high netbacks
of over $70/boe have enabled us to deliver
both record cashflows and earnings during a quarter where annual
shutdowns have tempered production. These results, together with the
enhanced debt facilities announced in October, provide an excellent
financial platform to drive the Company forward".
Greater Stella Area Development
-Deliverability of the Stella reservoir was confirmed with the
successful completion of the Stella "A1" development well during the
quarter, with the clean-up test performed on the well resulting in a
maximum flow rate of 10,835 boepd. Operations are progressing
according to plan on the "A2" development well, with drilling of the
horizontal reservoir section scheduled to commence shortly
-Solid progress continues to be made on execution of the "FPF-1"
floating production facility modifications programme. The vessel has
been re-floated following completion of the dry dock related marine
system works and work has commenced on the main topsides processing
plant construction and installation activities
-Execution of the 2013 subsea infrastructure installation work
programme is nearing completion, with the remaining works now focused
on tie-in of the infield flowlines and umbilicals
A new film is available on the Company's website ( www.ithacaenergy.com )
providing additional information on the work that has been completed on
the development over recent months.
2013 Production Outlook
Total pro-forma production for 2013 is forecast to average
approximately 13,000 boepd; this reflects inclusion of full year
production from the assets acquired as part of the Valiant Petroleum
plc ("Valiant") acquisition, which completed on April 19, 2013. This
is lower than originally anticipated for the year due primarily to
production deferrals resulting from the longer than anticipated
duration of the shutdowns that impacted the Cook and Causeway Area
fields during the second half of the year, and delay to completion of
the electrical submersible pump related works on the Taqa-operated host
facility for Causeway.
Corporate
The Company has extended and improved its long term senior bank debt
financing facilities, increasing its Reserve Based Lending ("RBL")
facility from $430 million to $610 million, and established a new five
year $100 million corporate facility.
Further farm-outs of the three UK exploration well commitments
transferred as a result of the Valiant acquisition were entered into
during the third quarter. When combined with the previously announced
farm-outs, on completion, Ithaca will be fully carried for the forecast
cost of drilling the wells and in addition will receive over $8 million
in cash from the farm-out parties.
- ENDS -
Enquiries:
Ithaca Energy
Graham
Forbes gforbes@ithacaenergy.com +44 (0)1224 652 151
Richard
Smith rsmith@ithacaenergy.com +44(0) 1224 652 172
FTI Consulting
Edward
Westropp edward.westropp@fticonsulting.com +44 (0)207 269 7230
Georgia
Mann georgia.mann@fticonsulting.com +44 (0)207 269 7212
Cenkos Securities
Jon
Fitzpatrick jfitzpatrick@cenkos.com +44 (0)207 397 8900
Neil
McDonald nmcdonald@cenkos.com +44 (0)131 220 6939
RBC Capital
Markets
Tim Chapman tim.chapman@rbccm.com +44 (0)207 653 4641
Matthew
Coakes matthew.coakes@rbccm.com +44 (0)207 653 4871
Notes Regarding Oil & Gas Disclosure
In accordance with AIM Guidelines, John Horsburgh, BSc (Hons)
Geophysics (Edinburgh), MSc Petroleum Geology (Aberdeen) and Subsurface
Manager at Ithaca is the qualified person that has reviewed the
technical information contained in this press release. Mr Horsburgh
has over 15 years operating experience in the upstream oil and gas
industry.
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,
utilising a conversion ratio at 6 Mcf: 1 bbl may be misleading as an
indication of value.
This press release contains non-International Financial Reporting
Standards ("IFRS") industry benchmarks and terms, such as "netbacks"
and "cashflow from operations". Netbacks are calculated on a per unit
basis as oil, gas and natural gas liquids revenues less royalties and
transportation and operating costs. Cashflow from operations and
cashflow from ongoing operations are determined by adding back changes
in non-cash operating working capital to cash from operating
activities. The Company considers cashflow from operations to be a key
measure as it demonstrates the Company's underlying ability to generate
the cash necessary to fund operations and support activities related to
its major assets. The non-IFRS financial measures do not have any
standardised meaning and therefore are unlikely to be comparable to
similar measures presented by other companies. The Company uses the
foregoing measures to help evaluate its performance. As an indicator of
the Company's performance, cashflow from operations should not be
considered as an alternative to, or more meaningful than, net cash from
operating activities as determined in accordance with IFRS.
Further details on the above are provided in the unaudited interim
consolidated financial statements of Ithaca for the quarter ended June
30, 2013, which have been filed with the securities regulatory
authorities in Canada. These financial statements are available on the
System for Electronic Document Analysis and Retrieval at www.sedar.com
and on the Company's website: www.ithacaenergy.com .
About Ithaca Energy
Ithaca Energy Inc. (TSX: IAE, LSE AIM: IAE) is a North Sea oil and gas
operator focused on the delivery of lower risk growth through the
appraisal and development of UK undeveloped discoveries, the
exploitation of its existing UK producing asset portfolio and a
Norwegian exploration and appraisal business centred on the generation
of discoveries capable of monetisation prior to development. Ithaca's
strategy is centred on generating sustainable long term shareholder
value by building a highly profitable 25kboe/d North Sea oil and gas
company. For further information please consult the Company's website
www.ithacaenergy.com .
Not for Distribution to U.S. Newswire Services or for Dissemination in
the United States
Forward-looking statements
Some of the statements and information in this press release are
forward-looking. Forward-looking statements and forward-looking
information (collectively, "forward-looking statements") are based on
the Company's internal expectations, estimates, projections,
assumptions and beliefs as at the date of such statements or
information, including, among other things, assumptions with respect to
production, drilling, well completion times, future capital
expenditures, future acquisitions and cash flow. The reader is
cautioned that assumptions used in the preparation of such information
may prove to be incorrect. When used in this press release, the
words"anticipate", "continue", "estimate", "expect", "may",
"will","project", "plan", "should", "believe", "could", "target" and
similar
expressions, and the negatives thereof, whether used in connection with
operational activities, production forecasts, budgetary figures,
potential developments or otherwise, are intended to identify
forward-looking statements. Such statements are not promises or
guarantees, and are subject to known and unknown risks, uncertainties
and other factors that may cause actual results or events to differ
materially from those anticipated in such forward-looking statements.
The Company believes that the expectations reflected in those
forward-looking statements and are reasonable but no assurance can be
given that these expectations, or the assumptions underlying these
expectations, will prove to be correct and such forward-looking
statements and included in this press release should not be unduly
relied upon. These forward-looking statements speak only as of the date
of this press release. Ithaca Energy Inc. expressly disclaims any
obligation or undertaking to release publicly any updates or revisions
to any forward-looking statement contained herein to reflect any change
in its expectations with regard thereto or any change in events,
conditions or circumstances on which any forward-looking statement is
based except as required by applicable securities laws.
HIGHLIGHTS THIRD QUARTER 2013
Record - Q3 2013 cashflow from operations increased by
financial over 150% to $77.8 million (Q3 2012: $30.1 million)
results resulting in Q3 YTD 2013 cashflow from operations of
$185.3 million (Q3 YTD 2012: $74.8 million) - Q3 YTD 2013
cashflow per share $0.63 (Q3 YTD 2012: $0.29)
- Q3 2013 net earnings of $54.1 million (Q3 2012:
$4.9 million) and Q3 YTD 2013 net earnings of $109.8
million (Q3 YTD 2012: $48.1 million) - Q3 2013 earnings
per share of $0.17
- Netbacks of over $70 / barrel of oil equivalent
("boe")
- Q3 2013 average realised oil price of $109 / bbl
(Q3 2012: $113 / bbl), including hedging
- Net drawn debt of $357 million at September 30,
2013 (zero net drawn debt at December 31, 2012)
- UK tax allowances pool of $993 million at
quarter end. Norwegian tax receivable of $88 million
- Approximately 3.4 million barrels of future
2013-14 oil production hedged at a weighted average price
of approximately $102 / bbl (approximately 30% puts / 70%
swaps)
Oil - Average production in Q3-2013 was 11,942 barrels
dominated of oil equivalent per day ("boepd"), 96% oil, reflecting
production the impact of shutdowns during the quarter
- Total pro-forma production for 2013 is forecast
to average approximately 13,000 boepd; this reflects
inclusion of full year production from the assets acquired
as part of the Valiant Petroleum plc ("Valiant")
acquisition, which completed on April 19, 2013. This is
lower than originally anticipated for the year due
primarily to production deferrals resulting from the
longer than anticipated duration of maintenance shutdown
activities that impacted the Cook and Causeway Area fields
during the second half of the year, and delay to
completion of the electrical submersible pump ("ESP")
related works on the Taqa-operated host facility for
Causeway
Continued - Drilling of the Stella "A1" development well was
strong successfully completed during the quarter, with the
progress clean-up test performed on the well resulting in a maximum
on Stella flow rate of 10,835 boepd. Operations are progressing
according to plan on the "A2" development well, with
drilling of the horizontal reservoir section scheduled to
commence shortly
- Solid progress continues to be made on execution
of the "FPF-1" floating production facility modifications
programme. The vessel has been re-floated following
completion of the dry dock related marine system works and
work has commenced on the main topsides processing plant
construction and installation activities
- Execution of the 2013 subsea infrastructure
installation work programme is nearing completion, with
the remaining works now focused on finishing the tie-in of
the infield flowlines and umbilicals
Enhanced - The Company has extended and improved its long
debt term senior bank debt financing facilities, increasing its
facilities Reserve Based Lending ("RBL") facility from $430 million
to $610 million and established a new five year $100
million corporate facility
- Further farm-outs of the three UK exploration
well commitments transferred as a result of the Valiant
Petroleum plc ("Valiant") acquisition were executed during
the quarter. When combined with the previously announced
farm-outs, on completion, Ithaca will be fully carried for
the forecast cost of drilling the wells and in addition will
receive over $8 million in cash from the farm-out
parties
SUMMARY STATEMENT OF INCOME
3 Months 9 Months
Ended Ended
Sep 30 Sep 30
2013 2012 2013 2012
Average Brent Oil Price $/bbl 110 110 109 110
Average Realised Oil Price(1) $/bbl 113 110 107 112
Revenue M$ 114.1 41.6 302.2 117.9
Cost of Sales - excluding DD&A M$ (35.0) (12.5) (124.1) (44.0)
G&A etc M$ 1.2 - 0.8 (1.8)
Non-recurring Valiant Restructuring M$ - - (5.2) -
Realised Derivatives Gain / (Loss) M$ (2.5) 1.0 11.6 2.7
Cashflow From Operations M$ 77.8 30.1 185.3 74.8
DD&A M$ (42.3) (14.6) (103.1) (39.0)
Unrealised Derivatives Gain / M$ (13.3) (12.9) (17.1) 5.2
(Loss)
Non-recurring Valiant Deal Costs M$ - - (5.0) -
Non-recurring Negative Goodwill M$ 7.0 - 55.9 -
Other M$ 16.7 (0.6) 1.3 (3.5)
Profit Before Tax M$ 45.9 2.0 117.3 37.5
Deferred Tax Credit / (Charge) M$ 8.2 2.9 (7.5) 10.6
Profit After Tax M$ 54.1 4.9 109.8 48.1
Earnings Per Share(2) $/Sh. 0.17 0.02 0.37 0.19
Cashflow Per Share(2) $/Sh. 0.25 0.12 0.63 0.29
(1)Average realised price before hedging
(2) Q3 2013 weighted average number of shares of 317.4 million and
Q3 YTD 2013 weighted average number of shares of 294.6 million
SUMMARY BALANCE SHEET
M$ Q3 2013 Q4 2012
Cash & Equivalents 77 31
Other Current Assets 366 198
PP&E 1,466 663
Other Non-Current Assets 54 41
Total Assets 1,963 934
Current Liabilities (430) (206)
Bank debt (427) -
Asset Retirement Obligations (160) (53)
Deferred Tax Liabilities (119) (62)
Other Non-Current Liabilities (15) (7)
Total Liabilities (1,151) (328)
Net Assets 812 606
Share Capital 525 431
Other Reserves 23 20
Surplus 264 154
Shareholders Equity 812 606
CORPORATE STRATEGY
Ithaca Energy Inc. ("Ithaca" or the "Company") is a
North Sea oil and gas operator focused on the
delivery of lower risk growth through the appraisal
and development of UK undeveloped discoveries, the
exploitation of its existing UK producing asset
portfolio and a Norwegian exploration and appraisal
business centred on the generation of discoveries
capable of monetisation prior to development.
The Company has a solid and diversified UK
producing asset base generating significant free
cashflow from mainly oil production.
Ithaca's goal is to generate sustainable long term
shareholder value by building a highly profitable
25kboepd North Sea oil and gas company.
Execution of the Company's strategy is focused on
the following core activities:
- Maximising cashflow and production from
the existing asset base.
- Delivery of lower risk development led
growth through the appraisal of undeveloped
discoveries.
- Delivering first hydrocarbons from the
Ithaca operated Greater Stella Area development.
- Monetising proven Norwegian asset reserves
derived from exploration and appraisal drilling
prior to the development phase.
- Continuing to grow and diversify the
cashflow base by securing new producing,
development and appraisal assets through targeted
acquisitions and licence round participation.
- Maintaining financial strength and a clean
balance sheet, supported by lower cost debt
leverage.
OPERATIONS UPDATE
PRODUCTION
Total production in Q3-2013 was 11,942 boepd, 96%
oil. This represents an increase of over 130% on
the same quarter in 2012 (Q3-2012: 5,061 boepd),
driven primarily by the additional assets acquired
as a result of the Valiant acquisition.
Production during the quarter was derived from the
operated Athena, Causeway Area (Causeway and
Fionn), Beatrice, Jacky and Anglia fields and the
non-operated Dons (Don Southwest and West Don),
Cook, Broom and Topaz fields.
OPERATIONAL ACTIVITIES
Operational activities in Q3-2013 were dominated by
maintenance shutdown activity on certain of the
Company's main fields.
Total production during the quarter was impacted by
commencement of the major planned maintenance
shutdown of the Taqa-operated North Cormorant
platform, which serves as the host facility for the
Causeway Area fields. The shutdown commenced at
the end of August 2013, with production being
reinstated in late October 2013, approximately two
weeks behind the original plan. The extended
shutdown duration and post-shutdown close-out
activities have resulted in slippage in execution
of the plan to complete the remaining platform
modifications required to deliver power to the
Causeway electrical submersible pump package
installed in the well. It is anticipated that
these platform workscopes will now be completed in
2014, resulting in deferment of ESP driven
incremental Causeway production.
Production during Q3-2013 was also affected by a
significant unplanned shutdown of the Shell
operated Cook field in August 2013. The Operator
commenced the shutdown in early August 2013 in
order to undertake an inspection of the infield
flowline connecting the field to its host facility,
the Anasuria floating production, storage and
offloading vessel. The inspection was completed
around mid-October 2013, enabling the reinstatement
of production. The shutdown duration was longer
than initially anticipated by the field Operator
due to delays incurred in mobilising a diving
support vessel to undertake the inspection works
and field re-start operations. However, the
inspection confirmed the integrity of the pipeline
thus avoiding an extended shutdown in 2014 which
was planned to cost $8 million (net).
During the quarter diagnostic testing confirmed
that the ESP pumps in the "P4" well on the Athena
field had failed. The net production impact of
this has been successfully mitigated by the
optimisation of the other wells on the field and
the processing facilities, such that it represents
a net production deferment to Ithaca of just over
300 bopd. The options for reinstating full
production from the well, via either a workover or
sidetrack, are currently under evaluation.
Minor planned maintenance shutdowns were incurred
during the quarter on the Anglia and Topaz gas
fields to accommodate the completion of maintenance
activities on the gas gathering systems servicing
the fields.
PRODUCTION OUTLOOK
Total pro-forma production for 2013 is forecast to
average approximately 13,000 boepd; this reflects
inclusion of full year production from the assets
acquired as part of the Valiant acquisition, which
completed on April 19, 2013. This is lower than
originally anticipated for the year primarily as a
result of production deferrals resulting from the
longer than anticipated duration of the maintenance
shutdown activities that have impacted the Cook and
Causeway Area fields during the second half of the
year, and delay to completion of the ESP related
works on the Taqa-operated host facility for
Causeway. Maintenance activities on the host
facility for the Dons fields, the Northern Producer
floating production facility, is also scheduled to
result in a modest reduction in production from the
fields over approximately two weeks in the final
quarter of 2013. These works are being completed
in order to improve the future uptime performance
of these facilities over the longer term.
GREATER STELLA AREA DEVELOPMENT UPDATE
Strong progress Strong progress has continued to be made with
during the development of the Greater Stella Area ("GSA") and
quarter on a number of key milestones have been closed out,
execution of the including completion of both the first Stella
key GSA development well and the dry dock related works and
development re-float of the FPF-1.
workscopes
DRILLING PROGRAMME
During the quarter the first Stella development
well was successfully drilled, completed and tested
using the ENSCO 100 jack-up drilling rig. The 30/
6a-A1Z ("A1") well is the first of four development
wells that are to be drilled on the Stella field
prior to the start-up of production.
The A1 well was drilled to a total vertical depth
subsea of 9,739 feet, with a 2,499 foot horizontal
reservoir section completed in the Palaeocene
Andrew sandstone reservoir, close to the targeted
transition between the oil rim and gas condensate
cap. As anticipated prior to drilling, the
reservoir quality encountered by the well was in
line with previous appraisal wells drilled on the
field. The well intersected a net reservoir
interval of 1,312 feet.
A clean-up and production flow test was performed
on the well. The purpose of this was to clean out
the drilling fluids used to complete the well, to
ensure that it is configured for the immediate
start-up of production following the hook-up of the
FPF-1, gain further information on the productivity
of the well and obtain hydrocarbon fluid samples.
The well flowed at a maximum rate of 10,835 boepd
on a 7/8-inch choke, with the full production
potential of the well limited by the capacity of
the well test equipment on the drilling rig. The
maximum flow rate of 10,835 boepd corresponds to
6,499 bopd of oil and 26 million standard cubic
feet of gas per day ("MMscf/d") of liquids rich
gas. Fluid samples show that the oil is of high
quality, approximately 42degrees API.
The processing facilities that will be used on the
FPF-1 to separate and export oil and gas produced
from the field will increase the overall oil
relative to gas production rate associated with the
A1 well, compared to that which can be achieved
from the simple separation facilities available for
the purposes of the well test.
Following completion of the A1 well, the ENSCO 100
rig moved directly on to drilling of the Stella A2
well. Operations are progressing to plan on the
well, with drilling of the horizontal reservoir
section scheduled to commence shortly.
Management of the Stella drilling and completion
operations is being performed by Advanced Drilling
Technology International ("ADTI") under "turnkey"
contract arrangements.
FPF-1 MODIFICATIONS PROGRAMME
Solid progress was made during the quarter with
execution of the FPF-1 dry dock related marine
system refurbishment and hull life extension works,
resulting in the vessel exiting the dry dock
facility and being re-floated in early October.
This marked a major milestone in execution of the
FPF-1 modifications programme, allowing the main
topsides processing plant construction and
installation activities to commence.
Three additional sponsons have been added to the
pontoons on the FPF-1, involving the construction
and installation of approximately 2000 tonnes of
steelwork blocks, to provide enhanced buoyancy.
Four buoyancy "blisters" are being fabricated and
will be added to the columns of the FPF-1 during
the next phase of operations, in parallel with the
topsides construction works. These modifications
are designed to ensure that the FPF-1 can
accommodate the new topsides processing equipment
that is to be installed on the main deck and
achieve strong operational uptime performance.
Processing plant equipment and materials for the
topsides of the vessel continue to flow to the
yard, with most of the major long lead pieces of
equipment having now been delivered to site in
readiness for installation. Work is progressing on
construction of the pre-assembled units and racks
that are to be installed on the vessel, which will
contain structural steel, pipework spools, cable
trays and equipment. The associated preparatory
work on the main deck of the FPF-1 is also
underway, involving the installation of the
structural steelwork on which the units and racks
will be located.
The FPF-1 modifications and upgrade programme is
being managed by Petrofac under the terms of a lump
sum incentivised contract. The modification works
are being undertaken at the Remontowa shipyard in
Gdansk, Poland.
SUBSEA INFRASTRUCTURE WORKS
Execution of the main subsea infrastructure
manufacturing and installation programme, which is
being undertaken by Technip UK Limited under the
terms of an integrated Engineering, Procurement,
Installation and Construction contract, has
continued to make rapid progress over Q3-2013.
Installation of the main subsea structures that
will be used for the production and export of
hydrocarbons to and from the FPF-1 was completed
during the quarter. The 60km 10-inch gas export
pipeline from the FPF-1 to the BP operated Central
Area Transmission System ("CATS") pipeline has also
now been fully installed following completion of
trench backfill, tie-in and as laid survey
operations. The pipeline is now configured to
receive gas exports upon the start-up of production
from the Stella field. No modifications are
required to the onshore Teeside Gas and Liquids
Processing ("TGLP") terminal to receive and process
the rich gas that will be exported from the FPF-1
through the CATS pipeline.
Installation of the flexible infield flowlines and
static umbilicals that connect the Stella field
drill centre manifolds to the FPF-1 riser bases has
now been completed and diving operations will
commence shortly to complete the tie-in of these
components. Completion of the tie-in operations
will mark the end of the 2013 subsea infrastructure
installation campaign.
Planning for the remaining subsea infrastructure
installation programme is well advanced. The
programme will involve tie-in of the wells,
installation of the dynamic flexible risers and
umbilicals that will connect the riser bases to the
FPF-1, the vessel mooring spread and the oil export
facilities.
GSA LICENCES
The GSA coventurers have elected to relinquish
licence P.1814 (Block 29/10d), containing the
Helios discovery. The licence terms required a
commitment to be made to either drilling a well on
the block or relinquishing it by October 2013.
Such a well commitment was not deemed appropriate
by the coventurers at this time.
CORPORATE ACTIVITIES
NEW DEBT FACILITIES
Enlarged senior debt The planned enlargement of the Company's
facility established, $430 million RBL facility was completed in
along with a new October in order to incorporate the assets
corporate debt facility acquired as part of the Valiant acquisition
and enable retirement of the $350 million
bridge credit facility taken out to
facilitate the acquisition. The increased
$610 million facility is based on
conventional oil and gas industry borrowing
base financing terms, with a loan term until
June 2017, and is available to fund on-going
development activities and any producing
asset acquisitions.
A new $100 million five year corporate debt
facility has also been established,
providing additional financial flexibility
for the Company to add new appraisal /
development opportunities to the existing
portfolio. This facility is based on normal
corporate debt covenants, relating to
EBITDAX ("Earnings before Interest Tax
Depreciation, Amortisation and Exploration
costs") coverage of debt and interest
obligations.
OIL SALES AGREEMENTS
The Company has entered into an extension of
its existing agreement with BP Oil
International Limited for the marketing of
niche grade crudes and its oil sales
agreement with Shell Trading International
Limited ("Shell") for production from the
Cook, Dons, Causeway Area and Broom
producing fields. Future volumes from the
Stella field may also be included. This
latter agreement includes the ability for
Ithaca, at its option, to receive
pre-payments for future crude sales to
Shell.
UK EXPLORATION FARM-OUTS
Fully carried positions In line with the Company's stated objective
plus a positive cash at the time of the Valiant acquisition,
balance established further farm-outs have been completed to
through farm-outs of the restructure and de-risk the 3 UK exploration
3 UK exploration wells well commitments transferred as a result of
commitments transferred the acquisition. Ithaca will now be fully
from Valiant carried for the forecast cost of drilling
the UK exploration commitment wells and in
addition will receive over $8 million in
cash from the farm-out parties.
The status of the UK exploration farm-outs
are summarised below. In addition to these
transactions, the Company has also withdrawn
from a number of licences in the portfolio
transferred from Valiant.
- Handcross - P1631 & P1832 (Blocks
204/14c, 204/18b & 204/19c): farm-outs have
been executed with RWE Dea UK SNS Limited, a
subsidiary of Edison International SpA,
Oyster Petroleum Limited and Sussex Energy
Limited. The agreements provide Ithaca with
a fully carried 31% (operated) working
interest and also a cash payment. Handcross
is a Palaeocene prospect located in the West
of Shetland sector of the UK Continental
Shelf ("UKCS"). An exploration well is
scheduled to be drilled on the prospect
using the Stena Carron drillship, with
operations anticipated to commence in late
2013.
- Isabella - P1820 (Blocks 30/6b, 30
/11a & 30/12d): farm-out executed with
Maersk Oil North Sea UK Limited and a
subsidiary of Edison International SpA. The
agreement provides Ithaca with a fully
carried 10% non-operated working interest
and also a cash payment. Isabella is a gas
condensate prospect located in the UK
Central North Sea. The licence work
programme requires an exploration well to be
drilled on the prospect by early 2015.
- Beverley - P1792 (Blocks 21/30f,
22/26c): farm-out executed with Shell UK
Limited, resulting in Ithaca reducing its
40% interest in the non-operated Central
North Sea exploration well to 20%, in return
for a partial carry of the costs of a well
on the Beverley prospect. The licence work
programme requires an exploration well to be
drilled on the prospect by early 2015.
HANDCROSS WELL
The Company is in the process of preparing
for the drilling of the operated exploration
well on the Handcross prospect located in
the West of Shetlands basin. The Stena
Carron drillship will be used for the
drilling operations and it is anticipated
that it will be on location at the end of
2013.
LANGLITINDEN WELL
Drilling of an exploration well on the Det
norske operated Langlintinden prospect is
scheduled to commence in late 2013 (5%
Ithaca working interest). The well is being
drilled on the licence PL659, located in the
Norwegian sector of the Barents Sea, in the
vicinity of the 2008 Caurus gas discovery
located on the same licence.
Q3 2013 RESULTS OF OPERATIONS
REVENUE
Quarterly revenue Three Months Ended September 30, 2013
of $114.1 million ,
reflecting a Revenue increased by $72.5 million in Q3 2013 to
realised average $114.1 million (Q3 2012: $41.6 million). This was
oil price of $109/ mainly driven by an increase in oil sales
bbl volumes, partially offset by a reduction in the
oil price.
Oil sales volumes increased primarily due to the
inclusion of sales from the Dons and Causeway
fields following the acquisition of Valiant
(April 2013). The additional Cook acquisition
(transaction completed in Q1 2013) also added to
the increase in oil sales offset by lower volumes
from the Beatrice and Jacky fields.
Average realised oil prices increased quarter on
quarter from $110/bbl in Q3 2012 to $113/bbl in
Q3 2013. The average Brent price for the quarter
was $110.3/bbl compared to $109.6/bbl for Q3
2012. The Company's realised oil prices do not
strictly follow the Brent price pattern given the
various oil sales contracts in place, with
certain field sales sold at a discount or premium
to Brent. The higher premium to Brent achieved
this quarter was predominantly driven by
significant premiums on the uplift of oil cargoes
from Nigg. This increase in average realised oil
price was offset by a realised hedging loss of $4
/bbl in Q3 2013.
Gas sales remained relatively steady quarter on
quarter, although volumes remain modest,
accounting for only 2% of total revenue.
Nine Months Ended September 30, 2013
Revenue increased by $184.3 million in Q3 YTD
2013 to $302.2 million (Q3 YTD 2012: $117.9
million). This movement mainly comprises an
increase in oil sales volumes, partially offset
by a reduction in oil price.
In line with the above quarterly movement, oil sales volumes
increased primarily due to the inclusion of sales from the Dons and
Causeway fields acquired from Valiant, as well as the additional
interest acquired in the Cook field and Athena coming onstream in Q2
2012, partially offset by lower volumes from the Beatrice and Jacky
fields attributable to planned shutdowns.
Total gas sales increased primarily as a result of higher realised
gas prices, with an increase from $38/boe to $43/boe, partially
offset by lower production volumes in the period.
3-Months 9-Months
Ended Ended
Sep 30 Sep 30
Average 2013 2012 2013 2012
Realised
Price
Oil $/bbl 113 110 104 112
Pre-Hedging
Oil $/bbl 109 113 108 115
Post-Hedging
Gas $/boe 41 41 43 38 COST OF SALES
3-Months 9-Months
Ended Sep 30 Ended Sep 30
$'000 2013 2012 2013 2012
Operating 41,893 20,903 108,275 52,031
Expenditure
DD&A 42,279 14,563 103,144 39,040
Movement in Oil (6,915) (8,370) 14,798 (7,989)&
Gas Inventory
Oil Purchases 34 - 981 -
Total 77,291 27,096 227,198 83,082
Three Months Ended September 30, 2013
Cost of sales increased in Q3 2013 to $77.3
million (Q3 2012: $27.1 million). This increase
was attributable to increases in operating
costs, depletion, depreciation and amortisation
("DD&A") and movement in oil and gas inventory.
Operating costs increased in the quarter to
$41.9 million (Q3 2012: $20.9 million) primarily
due to the inclusion of costs for the Dons and
Causeway fields acquired from Valiant, plus the
additional acquired interest in the Cook field.
Unit operating costs decreased to $38/boe in the
period (Q3 2012: $45/boe) mainly as a result of
the inclusion of the lower cost Dons and
Causeway fields acquired from Valiant. Unit
operating costs were not reduced further in the
quarter because of the planned Causeway area
maintenance shutdown and the unplanned shutdown
on Cook for infield flowline integrity
inspection as noted above.
DD&A for the quarter increased to $42.3 million
(Q3 2012: $14.6 million). This was primarily due
to higher production volumes in Q3 2013 as a
result of the addition of the Dons and Causeway
fields together with the additional acquired
interest in the Cook field. The blended DD&A
rate for the quarter increased to $38/boe (Q3
2012: $31/boe). The blended DD&A rate in Q3
2012 was unusually low due to the production
mix, however the primary driver for the increase
has been "business combination" accounting for
transactions.
As the below "Changes in Accounting Policies"
section outlines, the adoption of international
financial reporting standards ("IFRS") and
accounting for acquisitions as business
combinations has led to increased DD&A rates. It
should be noted that this increase in DD&A, and
hence Cost of Sales, is offset by a credit in
the Deferred Tax charged through the Statement
of Income.
An oil and gas inventory movement of $6.9
million was credited to cost of sales in Q3 2013
(Q3 2012 credit of $8.4 million). Movements in
oil inventory arise due to differences between
barrels produced and sold, with production being
recorded as a credit to movement in oil
inventory through cost of sales until the oil
has been sold. In Q3 2013 fewer barrels of oil
were sold (988k bbls) than produced (1,049k
bbls), mainly as a result of the timing of Cook,
Causeway and Dons field liftings.
Movement in Operating Oil Gas Total
Oil & Gas Inventory kbbls kboe kboe
Opening inventory 173 10 183
Production 1,049 50 1,099
Liftings/sales (988) (50) (1,038)
Transfers to LT inventory (7) - (7)
Closing volumes 227 10 237
Nine Months Ended September 30, 2013
Cost of sales increased in Q3 YTD 2013 to $227.2
million (Q3 YTD 2012: $83.1 million) due to
increases in operating costs, DD&A and movement
in oil and gas inventory.
Operating costs increased in the period to
$108.3 million (Q3 YTD 2012: $52.0 million)
primarily due to the inclusion of costs for the
Dons and Causeway fields acquired from Valiant,
plus increased Athena costs (only part period in
2012) and the additional interest acquired in
the Cook field as noted above.
DD&A for the period increased to $103.1 million
(Q3 YTD 2012: $39.0 million). This was primarily
due to higher production volumes in Q3 YTD 2013
with the addition of the Dons and Causeway
fields, together with a full period of
production from the Athena field and the
additional interest in the Cook field.
An oil and gas inventory movement of $14.8
million was charged to cost of sales in Q3 YTD
2013 (Q3 YTD 2012: credit of $8.0 million). In
Q3 YTD 2013 more barrels of oil were sold
(2,730k bbls) than produced (2,584k bbls), as a
result of the timing of liftings.
ADMINISTRATION & EXPLORATION & EVALUATION
EXPENSES
3-Months 9-Months
Ended Sep Ended Sep
30 30
$'000 2013 2012 2013 2012
General & Administration 1,315 462 6,731 2,566
Share Based Payments 203 62 865 401
Total Administration 1,518 524 7,596 2,967
Expenses
Non-recurring Valiant - - 10,235 -
Acquisition Costs
Exploration & Evaluation 509 112 953 191
("E&E")
Total 2,027 636 18,784 3,158
Three Months Ended September 30, 2013
Total administrative expenses increased in the
quarter to $1.5 million (Q3 2012: $0.5 million)
primarily due to an increase in general and
administrative expenses as a result of the
continued growth of the Company, including the
associated costs of an enlarged Ithaca group
post the Valiant acquisition. Share based
payment expenses increased as a result of
options being granted towards the end of 2012
(none end 2011), therefore higher amortisation
expense has been reflected through Q3 2013.
Exploration and evaluation expenses of $0.5
million were recorded in the quarter (Q3 2012:
$0.1 million) primarily due to the expensing of
previously capitalised costs relating to areas
where exploration and evaluation activities have
ceased.
Nine Months Ended September 30, 2013
Total administrative expenses increased in the
period to $7.6 million (Q3 YTD 2012: $3.0
million) primarily associated with an increase
in general and administrative expenses as a
result of the associated costs of an enlarged
Ithaca group post the Valiant acquisition as
well as higher levels of corporate activity,
particularly in the first quarter of the year.
FOREIGN EXCHANGE & FINANCIAL INSTRUMENTS
Three Months Ended September 30, 2013
A foreign exchange gain of $2.2 million was
recorded in Q3 2013 (Q3 2012: $0.7 million
gain). The majority of the Company's revenue is
US dollar driven while operating expenditures
are primarily incurred in British pounds. As
such, general volatility in the USD:GBP exchange
rate is the driver behind the foreign exchange
gains and losses, particularly on the
revaluation of the GBP bank accounts (USD:GBP
1.52 at the start of the quarter rising to
USD:GBPP 1.61 at the end of the quarter,
fluctuating between 1.49 and 1.61 during the
period). This volatility was partially offset by
the foreign exchange hedges and resultant gains
described below.
The Company recorded a $15.8 million loss on
financial instruments for the quarter ended
September 30, 2013 (Q3 2012: $12.0 million
loss). The loss was predominantly due to a $3.7
million realised loss on commodity hedges
together with a $22.9 million decrease in the
value of oil swaps and put options, due to a
reduction in the Brent oil forward curve,
partially offset by a $9.7 million gain on the
revaluation of foreign exchange instruments. In
addition, the Company realised a gain of $1.2
million on foreign exchange instruments.
The Company continues to limit exposure to
fluctuations in foreign currencies with forward
contracts to hedge a further GBP65 million and
EUR25 million of capital expenditure on the GSA
development at rates of $1.52: GBP1.00 and
$1.29: EUR1.00.
Nine Months Ended September 30, 2013
A foreign exchange gain of $0.1 million was
recorded in Q3 YTD 2013 (Q3 YTD 2012: $0.9
million gain). As above, general volatility in
the USD:GBP exchange rate was the main driver
behind the foreign exchange loss in Q3 YTD 2013
(USD:GBP at January 1, 2013: 1.62. USD:GBP at
September 30, 2013: 1.61 with fluctuations
between 1.48 and 1.64 during the period).
The Company recorded a $5.5 million loss on
financial instruments for the nine months ended
September 30, 2013 (Q3 YTD 2012: $6.6 million
gain). This was primarily driven by a $25.4
million downwards revaluation of commodity
hedges due to a reduction in value of oil swaps
and put options
partially offset by a $9.9 million realised gain
on commodity hedges (including a $6 million
settlement on the swaption conversion), a $8.3
million gain on the revaluation of foreign
exchange instruments together with a $1.8
million realised gain on foreign exchange
instruments.
BUSINESS COMBINATIONS
NEGATIVE GOODWILL
If the cost of an acquisition is more than the
fair value of net assets acquired, the
difference is recognised on the balance sheet as
goodwill. Conversely, if the cost of an
acquisition is less than the fair value of the
assets acquired, the difference is recognised as
negative goodwill in the statement of income. As
a result of business combination accounting for
the Valiant acquisition, $55.0 million of
negative goodwill was recognised in Q3 YTD 2013,
including $7 million in Q3 2013 relating to the
true-up of working capital balances on
acquisition. In addition, $0.9 million negative
goodwill was recognised in Q1 2013 in relation
to the Cook acquisition representing negative
goodwill of $55.9 million in the nine month
period ended September 30, 2013.
EXPLORATION OBLIGATION
As part of the Valiant acquisition accounting, a
liability was created to cover committed
exploration expenditure. On the farm-out of
Handcross to Euroil Exploration Limited, a
subsidiary of Edison International SpA, $22.3
million of this liability was released and
credited to the statement of income to reflect
the fact that Ithaca will no longer be liable
for these costs.
TAXATION
No UK tax Three Months Ended September 30, 2013
anticipated to be
payable in the A tax credit of $8.2 million was recognised in
mid-term the quarter ended September 30, 2013 (Q3 2012:
$2.9 million credit). This is a product of
adjustments to the tax charge primarily relating
to the UK Ring Fence Expenditure Supplement,
share based payments and the release of
exploration obligations. As noted in the Cost Of
Sales section the deferred tax credit is
increased by the use of accounting for
acquisitions as business combinations.
In addition, Norwegian tax refunds totalling $88
million relating to Norwegian capital
expenditure are recognised on the balance sheet.
As a result of the above factors, profit after
tax increased to $54.1 million (Q3 2012: $4.9
million).
Nine Months Ended September 30, 2013
A tax charge of $7.5 million was recognised in
the nine months ended September 30, 2013 (Q3 YTD
2012: $10.6 million credit). This is a product
of adjustments to the tax charge primarily
relating to the UK Ring Fence Expenditure
Supplement, share based payments and the release
of exploration obligations.
As a result of the above factors, profit after
tax decreased from $117.3 million to $109.8
million (Q3 YTD 2012: $48.1 million).
No taxes are expected to be paid in the mid-term
relating to upstream oil and gas activities as a
result of the $993 million UK tax allowances
pool available to the Company.
CAPITAL INVESTMENTS
Capital expenditure $608 million of the total $886 million capital
driven by additions to D&P assets in Q3 YTD 2013 was
significant attributable to the fair value on acquisition of
investment in the Valiant producing fields resulting from
development projects business combination accounting (the total
and the acquisition acquisition cost being $293.6 million). A
of Valiant further $105 million relates to non-cash
additions to decommissioning liabilities
relating to Valiant acquired assets and the
Stella field. The remaining D&P additions of
$173 million relate primarily to the acquisition
of the additional interest in the Cook field and
execution of the GSA development, with the main
areas of expenditure being on the manufacture
and fabrication of subsea infrastructure and
execution of the FPF-1 modification works (as
described above).
Capital expenditure on E&E assets in Q3 YTD 2013
was $49.7 million, offset by a $28.7 million
release of the acquired E&E liability, resulting
in a net addition of $21 million. Expenditure
was primarily focused
on the Norvarg and Storbarden exploration and
appraisal wells in Norway as well as UK
development projects. As part of the Valiant
acquisition accounting, a liability was created
to cover the committed exploration spend along
with a corresponding asset for the associated
Norwegian tax credit receivable. This liability
is released as the spend is incurred,
essentially resulting in a nil asset value
within PP&E.
$'000 Q3 2013 Q3 2012
Development & Production ("D&P") 885,757 98,311
Exploration & Evaluation 20,979 28,168
Other Fixed Assets 711 60
Total 907,447 126,539
LIQUIDITY AND CAPITAL RESOURCES
$'000 Q3 2013 Q4 2012 Increase /
(Decrease)
Cash & Cash 77,196 31,376 45,820
Equivalents
Trade & Other 325,677 173,949 151,728
Receivables
Inventory 28,106 15,878 12,228
Other Current 12,150 8,251 3,899
Assets
Trade & Other (408,604) (205,635) (202,969)
Payables
Net Working 34,525 23,819 10,706
Capital
As at September 30, 2013, Ithaca had a positive
net working capital balance of $34.5 million
including a cash balance of $77.2 million.
Available cash has been, and is currently,
invested in money market deposit accounts with
BNP Paribas ("BNPP"). Management has received
confirmation from the financial institution that
these funds are available on demand.
Cash and cash equivalents increased as a result
of bank debt drawings towards the end of the
quarter offsetting the continued cash investment
in the ongoing Stella field development. The
funds were drawn for substantial payments due
for imminent release post September 30, 2013 on
the Stella development. Other working capital
movements are driven by the timing of receipts
and payments of balances.
A significant proportion of Ithaca's accounts
receivable balance is with customers in the oil
and gas industry and is subject to normal joint
venture/industry credit risks. The Company
assesses partners' credit worthiness before
entering into joint venture agreements. The
Company regularly monitors all customer
receivable balances outstanding in excess of 90
days. As at September 30, 2013, substantially
all of the accounts receivable is current, being
defined as less than 90 days. In the past, the
Company has not experienced credit loss in the
collection of accounts receivable.
At September 30, 2013, Ithaca had three loan
facilities being a $430 million senior borrowing
base facility (the "Facility"), an additional
bridge credit facility (the "Bridge Facility")
of $350 million (to facilitate the Valiant
acquisition) together with a Norwegian debt
facility (the "Norwegian Facility") of NOK 450
million (~$75 million). At quarter end, the
Company had unused credit facilities totalling
approximately $421 million (Q4 2012: $430
million). Approximately $434 million was drawn
down under the facilities at September 30, 2013,
being $50 million drawn under the Facility, $350
million drawn under the Bridge Facility and $34
million drawn under the Norwegian Facility.
During the quarter ended September 30, 2013,
there was a net cash inflow of approximately
$46.7 million (Q3 2012: outflow of $55.0
million).
Cashflow from Operations
Cash generated from operating activities in Q3
2013 was $77.8 million primarily due to cash
generated from Athena, Beatrice, Jacky, Anglia,
Cook and Broom operations, augmented in Q3 2013
primarily due to the inclusion of Dons and
Causeway operations.
Cashflow from Financing Activities
Cash generated from financing activities in Q3
2013 was $52.1 million primarily due to
additional draw down of the existing debt
facility in Q3 2013 ($58 million).
Cashflow from Investing Activities
Cash used in investing activities in Q3 2013 was
$139.3 million primarily due to further capital
expenditure on the GSA development, including
modification of the FPF-1 and subsea
infrastructure fabrication works as noted above.
The Company continues to be fully funded, with
more than sufficient financial resources to
cover its anticipated future commitments from
its existing cash balance, debt facilities and
forecast cashflow from operations. No unusual
trends or fluctuations are expected outside the
ordinary course of business.
COMMITMENTS
The engineering financial commitments relate to
committed capital expenditure on the GSA
development, as well as ongoing capital
expenditure on existing producing fields. Rig
commitments reflect rig hire costs committed in
relation to the anticipated Stella wells. As
stated above, these commitments are expected to
be funded through the Company's existing cash
balance, forecast cashflow from operations and
its debt facilities.
$'000 1 2-5 5+
Year Years Years
Office Leases 954 3,137 -
Other Operating Leases 12,319 8,272 -
Exploration Licence 583 - -
Fees
Engineering 238,451 - -
Rig Commitments 23,094 - -
Total 275,401 11,049 -
FINANCIAL INSTRUMENTS
All financial instruments are initially measured in the balance
sheet at fair value. Subsequent measurement of the financial
instruments is based on their classification. The Company has
classified each financial instrument into one of these categories:
Financial Ithaca Subsequent Measurement
Instrument Classification
Category
Held-for-trading Cash, cash Fair Value with changes recognised
equivalents, in net income
restricted cash,
derivatives,
commodity hedges,
long-term liability
Held-to-maturity - Amortised cost using effective
interest rate method.
Loans and Accounts receivable Transaction costs (directly
Receivables attributable to acquisition or
issue of financial asset/
liability) are adjusted to fair
Other financial Accounts payable, value initially recognised. These
liabilities operating bank costs are also expensed using the
loans, accrued effective interest rate method and
liabilities recorded within interest expense.
The classification of all financial instruments is the same at
inception and at September 30, 2013.
The table below presents the total gain / (loss) on financial
instruments that has been disclosed through the statement of
comprehensive income.
Three months Nine months
ended ended
September 30 September 30
$'000 2013 2012 2013 2012
Revaluation Forex Forward Contracts 9,723 166 8,251 707
Revaluation of Gas Contract - 610 - 1,368
Revaluation of Other Long Term (90) (86) 64 (115)
Liability
Revaluation of Commodity Hedges (22,945) (13,617) (25,389) 3,241
Total Revaluation Gain/(Loss) (13,312) (12,927) (17,074) 5,201
Realised Gain on Forex Contracts 1,185 50 1,729 118
Realised Gain/(Loss) on Commodity (3,687) 888 9,873 2,597
Hedges
Total Realised Gain/(Loss) (2,502) 938 11,602 2,715
Total Realised / Revaluation Gain/ (15,814) (11,989) (5,472) 7,916
(Loss)
Contingent Consideration - - - (1,295)
Total Gain/(Loss) on Financial (15,814) (11,989) (5,472) 6,621
Instruments
The following table summarises the commodity hedges in place at the
end of the quarter.
Derivative Term Volume Average Price
bbl $/bbl
Oil Swaps October 2013 - December 2014 2,472,809 102
Put Options October 2013 - September 2014 930,300 104
Derivative Term Volume Average Price
Therms p/therm
Gas Swaps October 2013 - December 2014 1,974,000 67
The table below summarises the foreign exchange financial instruments
in place at the end of Q3 2013.
Derivative Forward Forward Forward
Plus contract contract
Term Oct 13 - Dec 13 Oct 13 - Jan 14 Oct 13 - Dec 13
Value GBP4million / month GBP65 million EUR25 million
Protection Rate $1.59/GBP1.00 $1.52/GBP1.00 $1.29/EUR1.00
Trigger Rate $1.50/GBP1.00 N/A N/A
SUMMARY OF QUARTERLY RESULTS
$'000 30 Sep 2013 30 Jun 2013 31 Mar 2013
Revenue 114,112 128,360 59,769
Profit After Tax 54,104 52,228 3,472
EPS - Basic 0.17 0.17 0.01
EPS - Diluted 0.17 0.17 0.01
$'000 31 Dec 30 Sep 30 Jun 31 Mar 31 Dec
2012 2012 2012 2012 2011
Revenue 52,566 41,579 35,779 40,553 54,870
Profit After 45,347 4,894 30,238 12,916 13,318
Tax
EPS - Basic 0.17 0.02 0.12 0.05 0.05
EPS - Diluted 0.17 0.02 0.11 0.05 0.05
The most significant factors to have affected the
Company's results during the above quarters, other than
transactions such as the Valiant acquisition, are
fluctuation in underlying commodity prices and movement
in production volumes. The Company has utilised forward
sales contracts and foreign exchange contracts to take
advantage of higher commodity prices while reducing the
exposure to price volatility. These contracts can cause
volatility in profit after tax as a result of unrealised
gains and losses due to movements in the oil price and
USD : GBP exchange rate.
OUTSTANDING SHARE INFORMATION
The Company's common shares are traded on the Toronto
Stock Exchange ("TSX") in Canada under the symbol "IAE"
and on the Alternative Investment Market ("AIM") in the
UK under the symbol "IAE".
As at September 30, 2013, Ithaca had 317,365,658 common
shares outstanding along with 19,314,630 options
outstanding to employees and directors to acquire common
shares.
No options were granted by the Board of Directors in the
quarter ended September 30, 2013.
Due to the exercise and listing of option shares
following the end of Q3-2013, as at November 8, 2013,
Ithaca had 322,233,620 common shares outstanding along
with 14,446,668 options outstanding to employees and
directors to acquire common shares.
September 30, 2013
Common Shares Outstanding 317,365,658
Share Price(1) $2.45 / Share
Total Market Capitalisation $777,545,862
(1) Represents the TSX close price (CAD$2.53 on last
trading day of September, 2013. US$:CAD$ 0.97 on
September 30, 2013
CONSOLIDATION
The consolidated financial statements of the Company and
the financial data contained in this management's
discussion and analysis ("MD&A") are prepared in
accordance with IFRS.
The consolidated financial statements include the
accounts of Ithaca and its wholly-owned subsidiaries
Ithaca Energy (Holdings) Limited ("Ithaca Holdings"),
Ithaca Energy (UK) Limited ("Ithaca UK"), Ithaca
Minerals North Sea Limited ("Ithaca Minerals") and
Ithaca Energy Holdings (UK) Limited ("Ithaca Holdings
UK") and its associates FPU Services Limited ("FPU") and
FPF-1 Limited ("FPF-1").
The consolidated financial statements also include,
from April 19 2013 only (being the acquisition date)
the Valiant group of companies, comprising the following
companies:
- Ithaca Petroleum Limited (formerly Valiant
Petroleum plc)
- Ithaca Causeway Limited (formerly Valiant
Causeway Limited)
- Ithaca Exploration Limited (formerly Valiant
Exploration Limited)
- Ithaca Alpha (NI) Limited (formerly Valiant
Alpha (NI) Limited
- Ithaca Gamma Limited (formerly Valiant Gamma
Limited)
- Ithaca Epsilon Limited (formerly Valiant
Epsilon Limited)
- Ithaca Delta Limited (formerly Valiant Delta
Limited)
- Ithaca Petroleum Holdings AS (formerly Valiant
Petroleum Holdings AS)
- Ithaca Petroleum Norge AS (formerly Valiant
Petroleum Norge AS)
- Ithaca Technology AS (formerly Valiant
Technology AS)
- Ithaca AS (formerly Querqus AS)
- Ithaca Petroleum EHF (formerly Valiant
Petroleum EHF)
All inter-company transactions and balances have been
eliminated on consolidation. A significant portion of
the Company's North Sea oil and gas activities are
carried out jointly with others. The consolidated
financial statements reflect only the Company's
proportionate interest in such activities.
CRITICAL ACCOUNTING ESTIMATES
Certain accounting policies require that management make
appropriate decisions with respect to the formulation of
estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses.
These accounting policies are discussed below and are
included to aid the reader in assessing the critical
accounting policies and practices of the Company and the
likelihood of materially different results being
reported. Ithaca's management reviews these estimates
regularly. The emergence of new information and changed
circumstances may result in actual results or changes to
estimated amounts that differ materially from current
estimates.
The following assessment of significant accounting
policies and associated estimates is not meant to be
exhaustive. The Company might realise different results
from the application of new accounting standards
promulgated, from time to time, by various rule-making
bodies.
Capitalised costs relating to the exploration and
development of oil and gas reserves, along with
estimated future capital expenditures required in order
to develop proved and probable reserves are depreciated
on a unit-of-production basis, by asset, using estimated
proved and probable reserves as adjusted for production.
A review is carried out each reporting date for any
indication that the carrying value of the Company's D&P
assets may be impaired. For D&P assets where there are
such indications, an impairment test is carried out on
the Cash Generating Unit ("CGU"). Each CGU is
identified in accordance with IAS 36. The Company's
CGUs are those assets which generate largely independent
cash flows and are normally, but not always, single
developments or production areas. The impairment test
involves comparing the carrying value with the
recoverable value of an asset. The recoverable amount of
an asset is determined as the higher of its fair value
less costs to sell and value in use, where the value in
use is determined from estimated future net cash flows.
Any additional depreciation resulting from the
impairment testing is charged to the Statement of
Income.
Goodwill is tested annually for impairment and also when
circumstances indicate that the carrying value may be at
risk of being impaired. Impairment is determined for
goodwill by assessing the recoverable amount of each CGU
to which the goodwill relates. Where the recoverable
amount of the CGU is less than its carrying amount, an
impairment loss is recognised in the Statement of
Income. Impairment losses relating to goodwill cannot be
reversed in future periods.
Recognition of decommissioning liabilities associated
with oil and gas wells are determined using estimated
costs discounted based on the estimated life of the
asset. In periods following recognition, the liability
and associated asset are adjusted for any changes in the
estimated amount or timing of the settlement of the
obligations. The liability is accreted up to the actual
expected cash outlay to perform the abandonment and
reclamation. The carrying amounts of the associated
assets are depleted using the unit of production method,
in accordance with the depreciation policy for
development and production assets. Actual costs to
retire tangible assets are deducted from the liability
as incurred.
All financial instruments, other than those designated
as effective hedging instruments, are initially
recognised at fair value on the balance sheet. The
Company's financial instruments consist of cash,
restricted cash, accounts receivable, deposits,
derivatives, accounts payable, accrued liabilities and
the long term liability on the Beatrice acquisition.
Measurement in subsequent periods is dependent on the
classification of the respective financial instrument.
In order to recognise share based payment expense, the
Company estimates the fair value of stock options
granted using assumptions related to interest rates,
expected life of the option, volatility of the
underlying security and expected dividend yields. These
assumptions may vary over time.
The determination of the Company's income and other tax
liabilities / assets requires interpretation of complex
laws and regulations. Tax filings are subject to audit
and potential reassessment after the lapse of
considerable time. Accordingly, the actual income tax
liability may differ significantly from that estimated
and recorded on the financial statements.
The accrual method of accounting will require management
to incorporate certain estimates of revenues, production
costs and other costs as at a specific reporting date.
In addition, the Company must estimate capital
expenditures on capital projects that are in progress or
recently completed where actual costs have not been
received as of the reporting date.
CONTROL ENVIRONMENT
Ithaca has established disclosure controls, procedures
and corporate policies so that its consolidated
financial results are presented accurately, fairly and
on a timely basis. The Chief Executive Officer and Chief
Financial Officer have designed, or have caused such
internal controls over financial reporting to be
designed under their supervision, to provide reasonable
assurance regarding the reliability of financial
reporting and preparation of the Company's financial
statements in accordance with IFRS with no material
weaknesses identified.
Based on their inherent limitations, disclosure controls
and procedures and internal controls over financial
reporting may not prevent or detect misstatements and
even those options determined to be effective can
provide only reasonable assurance with respect to
financial statement preparation and presentation.
As of September 30, 2013, there were no changes in
Ithaca's internal control over financial reporting that
occurred during the quarter ended September 30, 2013
that have materially affected, or are reasonably likely
to materially affect, our internal control over
financial reporting.
CHANGES IN ACCOUNTING POLICIES
On January 1, 2011, the Company adopted IFRS using a
transition date of January 1, 2010. The financial
statements for the quarter ended September 30, 2013,
including required comparative information, have been
prepared in accordance with International Financial
Reporting Standards as issued by the International
Accounting Standards Board ("IASB").
The Company elected to present all acquisitions since
the IFRS transition date as business combinations in
accordance with IFRS 3®.
One impact of accounting for acquisitions as business
combinations is the recognition of asset values, upon
which the DD&A rate is calculated as pre-tax fair values
and the recognition of a deferred tax liability on
estimated future cash flows. With current tax rates at
62% this increases the DD&A charge for such assets. An
offsetting reduction is recognised in the deferred tax
charged through the consolidated statement of income.
In May 2011, the IASB issued the following standards:
IFRS 10, Consolidated Financial Statements ("IFRS 10"),
IFRS 11, Joint Arrangements ("IFRS 11"), IFRS 12,
Disclosure of Interests in Other Entities ("IFRS 12"),
IAS 27, Separate Financial Statements ("IAS 27"), IFRS
13, Fair Value Measurement ("IFRS 13") and amended IAS
28, Investments in Associates and Joint Ventures ("IAS
28"). Each of the new standards is effective for annual
periods beginning on or after 1 January 2013. There has
been no material impact from the adoption of the new and
amended standards on the Company's financial statements.
ADDITIONAL INFORMATION
Non-IFRS
Measures 'Cashflow from operations' referred to in this MD&A is
not prescribed by IFRS. This non-IFRS financial measure
does not have any standardised meaning and therefore is
unlikely to be comparable to similar measures presented
by other companies. The Company uses this measure to
help evaluate its performance. As an indicator of the
Company's performance, cashflow from operations should
not be considered as an alternative to, or more
meaningful than, net cash from operating activities as
determined in accordance with IFRS. The Company
considers Cashflow from operations to be a key measure
as it demonstrates the Company's underlying ability to
generate the cash necessary to fund operations and
support activities related to its major assets. Cashflow
from operations is determined by adding back changes in
non-cash operating working capital to cash from
operating activities.'EBITDAX' referred to in this MD&A is
not prescribed by
IFRS. EDITDAX is defined as earnings before interest,
taxes, Depreciation, Amortization and Exploration costs.
EBITDAX is a supplemental non-GAAP financial measure
that is not recognized under IFRS and does not have a
standardized meaning prescribed by IFRS. EBITDAX should
not be considered as an alternative to, or more
meaningful than, net profit and comprehensive income or
cash flows from operating activities as determined in
accordance with IFRS or as an indicator of operating
performance or liquidity. The computations of EBITDAX
may not be comparable to other similarly titled measures
of other companies, and accordingly EBITDAX may not be
comparable to measures used by other companies.'Netbacks'
referred to in this MD&A is not prescribed by
IFRS. Netbacks are calculated on a per unit basis as
oil, gas and natural gas liquids revenues less royalties
and transportation and operating costs. Management
believes that Netback is a useful supplemental measure
as it provides an indication of the results generated by
the principal business activities. Netbacks may not be
comparable to other similarly titled measures of other
companies, and accordingly Netbacks may not be
comparable to measures used by other companies.
Off Balance The Company has certain lease agreements and rig
Sheet commitments which were entered into in the normal course
Arrangements of operations, all of which are disclosed under the
heading "Commitments", above. Leases are treated as
either operating leases or finance leases based on the
extent to which risks and rewards incidental to
ownership lie with the lessor or the lessee under IAS
17. No asset or liability value has been assigned to
any leases on the balance sheet as at September 30,
2013.
Related A director of the Company is a partner of Burstall
Party Winger LLP who acts as counsel for the Company. The
Transactions amount of fees paid to Burstall Winger LLP in Q3 2013
was $0.3 million (Q3 2012: $0.1 million). These
transactions are in the normal course of business and
are conducted on normal commercial terms with
consideration comparable to those charged by third
parties.
As at September 30, 2013 the Company had a loan
receivable from FPF-1 Ltd, an associate of the Company,
for $26.3 million (Q3 2012: $21.6 million) as a result
of the completion of the GSA transactions in 2012.
BOE The calculation of boe is based on a conversion rate of
Presentation six thousand cubic feet of natural gas ("mcf") to one
barrel of crude oil ("bbl"). The term boe may be
misleading, particularly if used in isolation. A boe
conversion ratio of 6 mcf: 1 bbl is based on an energy
equivalency conversion method primarily applicable at
the burner tip and does not represent a value
equivalency at the wellhead. Given the value ratio based
on the current price of crude oil as compared to natural
gas is significantly different from the energy
equivalency of 6 mcf: 1 bbl, utilising a conversion
ratio at 6 mcf: 1 bbl may be misleading as an indication
of value.
Well Test Certain well test results disclosed in this MD&A
Results represent short-term results, which may not necessarily
be indicative of long-term well performance or ultimate
hydrocarbon recovery there from.
RISKS AND UNCERTAINTIES
The business of exploring for, developing and producing oil
and natural gas reserves is inherently risky. There is
substantial risk that the manpower and capital employed
will not result in the finding of new reserves in economic
quantities. There is a risk that the sale of reserves may
be delayed due to processing constraints, lack of pipeline
capacity or lack of markets. The Company is dependent upon
the production rates and oil price to fund the current
development program.
For additional detail regarding the Company's risks and
uncertainties, refer to the Company's Annual Information
Form dated March 25, 2013, (the "AIF") filed on SEDAR at
www.sedar.com .
RISK MITIGATIONS
Commodity The Company's performance is In order to mitigate the
Price significantly impacted by risk of fluctuations in oil
Volatility prevailing oil and natural gas and gas prices, the Company
prices, which are primarily routinely executes commodity
driven by supply and demand as price derivatives,
well as economic and political predominantly in relation to
factors. oil production, as a means
of establishing a floor in
realised prices.
Foreign The Company is exposed to Given the increasing
Exchange financial risks including proportion of development
Risk financial market volatility capital expenditure and
and fluctuation in various operating costs incurred in
foreign exchange rates. currencies other than the
United States dollar, the
Company routinely executes
hedges to mitigate foreign
exchange rate risk on
committed expenditure.
Interest The Company is exposed to In order to mitigate the
Rate Risk fluctuation in interest rates, fluctuations in interest
particularly in relation to rates, the Company routinely
the debt facilities entered reviews cost exposures as a
into. result of varying rates and
assesses the need to lock in
interest rates.
Debt The Company is exposed to The Company believes that
Facility borrowing risks relating to there are no circumstances
Risk drawdown of its debt at present that result in
facilities (the "Facilities"). its failure to meet the
The ability to drawdown the financial tests and it can
Facilities is based on the therefore draw down upon its
Company meeting certain Facilities.
covenants including coverage
ratio tests, liquidity tests The Company routinely
and development funding tests produces detailed cashflow
which are determined by a forecasts to monitor its
detailed economic model of the compliance with the
Company. There can be no financial tests and
assurance that the Company liquidity requirements of
will satisfy such tests in the the Facilities.
future in order to have access
to the full amount of the
Facilities.
The Facilities includes
covenants which restrict,
among other things, the
Company's ability to incur
additional debt or dispose of
assets.
As is standard to a credit
facility, the Company's and
Ithaca Energy (UK) Limited's
("Ithaca UK") assets have been
pledged as collateral and are
subject to foreclosure in the
event the Company or Ithaca UK
defaults.
Financing To the extent cashflow from The Company has established
Risk operations and the Facilities' a fully funded business plan
resources are ever deemed not and routinely monitors its
adequate to fund Ithaca's cash detailed cashflow forecasts
requirements, external and liquidity requirements
financing may be required. to maintain its funding
Lack of timely access to such requirements. The Company
additional financing, or believes that there are no
access on unfavourable terms, circumstances at present
could limit the future growth that would lead to selected
of the business of Ithaca. To divestment, delays to
the extent that external existing programs or a
sources of capital, including default relating to the
public and private markets, Facility.
become limited or unavailable,
Ithaca's ability to make the
necessary capital investments
to maintain or expand its
current business and to make
necessary principal payments
under the Facilities may be
impaired.
A failure to access adequate
capital to continue its
expenditure program may
require that the Company meet
any liquidity shortfalls
through the selected
divestment of its portfolio or
delays to existing development
programs.
Third Party The Company is and may in the The Company believes this
Credit Risk future be exposed to third risk is mitigated by the
party credit risk through its financial position of the
contractual arrangements with parties. All of the
its current and future joint Company's oil production
venture partners, marketers of from the Beatrice, Jacky and
its petroleum production and Athena fields is sold to BP
other parties. The Company Oil International Limited.
extends unsecured credit to Oil production from Cook,
these parties, and therefore, Broom, Causeway, Fionn and
the collection of any Dons is sold to Shell
receivables may be affected by Trading International Ltd.
changes in the economic Anglia and Topaz gas
environment or other production is sold through
conditions. contracts to RWE NPower PLC
and Hess Energy Gas Power
(UK) Ltd. Cook gas is sold
to Shell UK Ltd. and Esso
Exploration & Production UK
Ltd. The Company has not
experienced any material
credit loss in the
collection of accounts
receivable to date.
The joint venture partners
in those assets operated by
the Company are largely well
financed international
companies. Where
appropriate, a cash call
process has been implemented
with the GSA partners to
cover high levels of
anticipated capital
expenditure thereby reducing
any third party credit risk.
Property The Company's properties will The Company has routine
Risk be generally held in the form ongoing communications with
of licenses, concessions, the UK oil and gas
permits and regulatory regulatory body, the
consents ("Authorisations"). Department of Energy and
The Company's activities are Climate Change ("DECC").
dependent upon the grant and Regular communication allows
maintenance of appropriate all parties to an
Authorisations, which may not Authorisation to be fully
be granted; may be made informed as to the status of
subject to limitations which, any Authorisation and
if not met, will result in the ensures the Company remains
termination or withdrawal of updated regarding fulfilment
the Authorisation; or may be of any applicable
otherwise withdrawn. Also, in requirements.
the majority of its licenses,
the Company is often a joint
interest-holder with another
third party over which it has
no control. An Authorisation
may be revoked by the relevant
regulatory authority if the
other interest-holder is no
longer deemed to be
financially credible.
There can be no assurance that
any of the obligations
required to maintain each
Authorisation will be met.
Although the Company believes
that the Authorisations will
be renewed following expiry or
granted (as the case may be),
there can be no assurance that
such
authorisations will be renewed
or granted or as to the terms
of such renewals or grants.
The termination or expiration
of the Company's
Authorisations may have a
material adverse effect on the
Company's results of
operations and business.
The areas covered by the
Authorisations are or may be
subject to agreements with the
proprietors of the land. If
such agreements are
terminated, found void or
otherwise challenged, the
Company may suffer significant
damage through the loss of
opportunity to identify and
extract oil or gas.
Operational The Company is subject to the The Company acts at all
Risk risks associated with owning times as a reasonable and
oil and natural gas prudent operator. The
properties, including Company takes out market
environmental risks associated insurance to mitigate many
with air, land and water. All of these operational,
of the Company's operations construction and
are conducted offshore in the environmental risks.
United Kingdom Continental
Shelf; as such Ithaca is The Company uses the
exposed to operational risk services of Sproule
associated with weather delays International Limited
that can result in a material ("Sproule") to independently
delay in project execution. assess the Company's
Third parties operate some of reserves on an annual basis.
the assets in which the
Company has interests. As a
result, the Company may have
limited ability to exercise
influence over the operations
of these assets and their
associated costs. The success
and timing of these activities
may be outside the Company's
control.
There are numerous
uncertainties in estimating
the Company's reserve base due
to the complexities in
estimating the magnitude and
timing of future production,
revenue, expenses and
capital.
Competition In all areas of the Company's The Company places
Risk business, there is competition appropriate emphasis on
with entities that may have ensuring it attracts and
greater technical and retains high quality
financial resources. resources to enable it to
maintain its competitive
position.
FORWARD-LOOKING INFORMATION
This MD&A and any documents incorporated by reference
herein contain certain forward-looking statements and
forward-looking information which are based on the
Company's internal expectations, estimates, projections,
assumptions and beliefs as at the date of such statements
or information, including, among other things, assumptions
with respect to production, future capital expenditures,
future acquisitions and cash flow. The reader is
cautioned that assumptions used in the preparation of such
information may prove to be incorrect. The use of any of
the words "anticipate", "continue", "estimate",
"expect","may", "will", "project", "plan", "should", "believe","could",
"scheduled", "targeted", "approximately" and
similar expressions are intended to identify
forward-looking statements and forward-looking
information. These statements are not guarantees of
future performance and involve known and unknown risks,
uncertainties and other factors that may cause actual
results or events to differ materially from those
anticipated in such forward-looking statements or
information. The Company believes that the expectations
reflected in those forward-looking statements and
information are reasonable but no assurance can be given
that these expectations, or the assumptions underlying
these expectations, will prove to be correct and such
forward-looking statements and information included in
this MD&A and any documents incorporated by reference
herein should not be unduly relied upon. Such
forward-looking statements and information speak only as
of the date of this MD&A and any documents incorporated by
reference herein and the Company does not undertake any
obligation to publicly update or revise any
forward-looking statements or information, except as
required by applicable laws.
In particular, this MD&A and any documents incorporated by
reference herein, contains specific forward-looking
statements and information pertaining to the following:
- the quality of and future net revenues from the
Company's reserves;
- oil, natural gas liquids ("NGLs") and natural gas
production levels;
- commodity prices, foreign currency exchange rates
and interest rates;
- capital expenditure programs and other
expenditures;
- the sale, farming in, farming out or development
of certain exploration properties using third party
resources;
- supply and demand for oil, NGLs and natural gas;
- the Company's ability to raise capital;
- the continued availability of the RBL Facility and
the $100 million corporate facility;
- the Company's acquisition strategy, the criteria
to be considered in connection therewith and the benefits
to be derived therefrom;
- the realisation of anticipated benefits from
acquisitions and dispositions;
- the Company's ability to continually add to its
reserves;
- schedules and timing of certain projects and the
Company's strategy for growth;
- the Company's future operating and financial
results;
- the ability of the Company to optimise operations
and reduce operational expenditures;
- treatment under governmental and other regulatory
regimes and tax, environmental and other laws;
- production rates;
- targeted production levels; and
- timing and cost of the development of the
Company's reserves.
With respect to forward-looking statements contained in
this MD&A and any documents incorporated by reference
herein, the Company has made assumptions regarding, among
other things:
- Ithaca's ability to obtain additional drilling
rigs and other equipment in a timely manner, as required;
- access to third party hosts and associated
pipelines can be negotiated and accessed within the
expected timeframe;
- FDP approval and operational construction and
development is obtained within expected timeframes;
- the Company's development plan for the Stella and
Harrier discoveries will be implemented as planned;
- the effect of the Valiant acquisition on Ithaca;
- reserves volumes assigned to Ithaca's properties;
- ability to recover reserves volumes assigned to
Ithaca's properties;
- revenues do not decrease below anticipated levels
and operating costs do not increase
significantly above anticipated levels;
- future oil, NGLs and natural gas production levels
from Ithaca's properties and the prices obtained from the
sales of such production;
- the level of future capital expenditure required
to exploit and develop reserves;
- Ithaca's ability to obtain financing on acceptable
terms, in particular, the Company's ability to access the
Facility;
- the continued ability of the Company to collect
from third parties who Ithaca has provided credit to;
- Ithaca's reliance on partners and their ability to
meet commitments under relevant agreements; and
- the state of the debt and equity markets in the
current economic environment.
The Company's actual results could differ materially from
those anticipated in these forward-looking statements and
information as a result of assumptions proving inaccurate
and of both known and unknown risks, including the risk
factors set forth in this MD&A and under the heading "Risk
Factors" in the AIF and the documents incorporated by
reference herein, and those set forth below:
- risks associated with the exploration for and
development of oil and natural gas reserves in the North
Sea;
- risks associated with offshore development and
production including transport facilities;
- operational risks and liabilities that are not
covered by insurance;
- volatility in market prices for oil, NGLs and
natural gas;
- the ability of the Company to fund its substantial
capital requirements and operations;
- risks associated with ensuring title to the
Company's properties;
- changes in environmental, health and safety or
other legislation applicable to the Company's operations,
and the Company's ability to comply with current and
future environmental, health and safety and other laws;
- the accuracy of oil and gas reserve estimates and
estimated production levels as they are affected by the
Company's exploration and development drilling and
estimated decline rates;
- the Company's success at acquisition, exploration,
exploitation and development of reserves;
- risks associated with realisation of anticipated
benefits of acquisitions;
- risks related to changes to government policy with
regard to offshore drilling;
- the ability of the Company to obtain and maintain
all of its required permits and licenses;
- competition for, among other things, capital,
drilling equipment, acquisitions of reserves, undeveloped
lands and skilled personnel;
- changes in general economic, market and business
conditions in Canada, North America, the United Kingdom,
Europe and worldwide;
- actions by governmental or regulatory authorities
including changes in income tax laws or changes in tax
laws, royalty rates and incentive programs relating to the
oil and gas industry including any increase in UK taxes;
- adverse regulatory rulings, orders and decisions;
and
- risks associated with the nature of the common
shares.
Additional
Reader
Advisories The information in this MD&A is provided as of November 8,
2013. The Q3 2013 results have been compared to the
results of the comparative period in 2012. This MD&A
should be read in conjunction with the Company's unaudited
consolidated financial statements as at September 30, 2013
and 2012 and with the Company's audited consolidated
financial statements as at December 31, 2012 together with
the accompanying notes and MD&A, and AIF for the 2012
fiscal year. Copies of these documents are available
without charge from Ithaca or electronically on the
internet on Ithaca's SEDAR profile at www.sedar.com .
Consolidated Statement of Income
For the three and nine months ended 30 September 2013 and 2012
(unaudited)
Three months Nine months
ended ended
30 Sept 30 Sept
2013 2012 2013 2012
Note US$'000 US$'000 US$'000 US$'000
Revenue 4 114,112 41,579 302,241 117,912
Cost of sales 5 (77,291) (27,096) (227,198) (83,082)
Gross Profit 36,821 14,483 75,043 34,830
Exploration and evaluation 10 (509) (112) (953) (191)
expenses
Administrative expenses (1,518) (524) (7,956) (2,967)
Non-recurring Valiant - - (10,235) -
acquisition costs
Total Administrative expenses 6 (1,518) (524) (17,831) (2,967)
Operating Profit 34,794 13,847 56,259 31,672
Foreign exchange 2,212 748 137 851
(Loss)/gain on financial 24 (15,814) (11,989) (5,472) 6,621
instruments
Release of exploration 15 22,649 - 22,649 205
obligation
Negative goodwill 7,033 - 55,912 -
Profit Before Interest and 50,874 2,606 129,485 39,349
Tax
Finance costs 7 (4,956) (697) (12,233) (2,068)
Interest income 3 61 45 195
Profit Before Tax 45,921 1,970 117,297 37,476
Taxation 22 8,183 2,924 (7,492) 10,575
Profit After Tax 54,104 4,894 109,805 48,051
Earnings per share
Basic 21 0.17 0.02 0.37 0.19
Diluted 21 0.17 0.02 0.37 0.18
The accompanying notes on pages 6 to 23 are an integral part of the
financial statements.
Consolidated Statement of Financial Position
(unaudited)
30 September 31 December
2013 2012
Note US$'000 US$'000
ASSETS
Current assets
Cash and cash equivalents 73,770 31,374
Restricted cash 8 3,426 2
Accounts receivable 212,905 159,195
Norwegian tax receivable 87,517 -
Deposits, prepaid expenses and other 25,255 14,754
Inventory 9 28,106 15,878
Derivative financial instruments 25 12,150 8,251
443,129 229,454
Non current assets
Long-term receivable 27 26,346 21,551
Investment in associate 13 18,337 18,337
Exploration and evaluation assets 10 67,416 47,390
Property, plant & equipment 11 1,398,401 615,788
Goodwill 12 985 985
Other non-current assets 8,126 -
1,519,611 704,051
Total assets 1,962,740 933,505
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables 408,604 205,635
Exploration obligations 15 21,485 -
430,089 205,635
Non current liabilities
Bank debt 14 426,574 -
Decommissioning liabilities 16 160,014 52,834
Other long term liabilities 17 2,955 3,018
Contingent consideration 18 4,000 4,000
Derivative financial instruments 25 8,253 -
Deferred tax liability 22 119,152 62,370
720,948 122,222
Net Assets 811,703 605,648
Equity attributable to equity holders
Share capital 19 524,908 431,318
Share based payment reserve 20 23,000 20,340
Retained earnings 263,795 153,990
Shareholders' Equity 811,703 605,648
The financial statements were approved by the Board of Directors on 8
November 2013 and signed on its behalf by:"Jay Zammit"
Director"John Summers"
Director
The accompanying notes on pages 6 to 23 are an integral part of the
financial statements.
Consolidated Statement of Changes in Equity
(unaudited)
Share Share Retained Total
Capital Based Earnings
Payment
Reserve
US$'000 US$'000 US$'000 US$'000
Balance, 1 Jan 2012 429,502 17,318 60,591 507,411
Net income for the period - - 48,051 48,051
Total comprehensive income 429,502 17,318 108,642 555,462
Share based payment - 2,399 - 2,399
Options exercised 250 (107) - 143
Balance, 30 September 2012 429,752 19,610 108,642 558,004
Balance, 1 Jan 2013 431,318 20,340 153,990 605,648
Net income for the period - - 109,805 109,805
Total comprehensive income 431,318 20,340 263,795 715,453
Shares issued 93,005 - - 93,005
Share based payment - 2,917 - 2,917
Options exercised 585 (257) - 328
Balance, 30 September 2013 524,908 23,000 263,795 811,703
The accompanying notes on pages 6 to 23 are an integral part of the
financial statements.
Consolidated Statement of Cash Flow
For the three and nine months ended 30 September 2013 and 2012
(unaudited)
Three months ended Nine months ended
30 Sept 30 Sept
2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000
CASH PROVIDED BY (USED IN):
Operating activities
Profit Before Tax 45,921 1,970 117,297 37,476
Adjustments for:
Depletion, depreciation and 42,279 14,563 103,144 39,040
amortisation
Exploration and evaluation 509 112 953 191
expenses
Share based payment 203 62 864 401
Loan fee amortisation 592 - 1,777 494
Revaluation of financial 13,312 12,927 17,074 (5,201)
instruments
Revaluation of contingent - - - 1,295
consideration
Movement in goodwill (7,033) - (48,878) -
Gain on disposal - - - (205)
Gain on exploration obligation (22,321) - (22,321) -
release
Accretion 1,375 453 2,965 1,272
Bank interest & charges 2,949 - 7,405 -
Valiant acquisition fees - - 5,032 -
Cashflow from operations 77,786 30,087 185,312 74,763
Changes in inventory, debtors and (7,925) (7,255) 12,917 3,092
creditors relating to operating
activities
Net cash from operating 69,861 22,832 198,229 77,855
activities
Investing activities
Acquisition of Valiant - - (200,636) -
Cash acquired on acquisition of - - 11,611 -
Valiant
Valiant acquisition fees - - (5,032) -
Acquisition of Cook - - (33,370) -
Capital expenditure (139,304) (60,456) (196,943) (114,745)
Investment in associate - - - (18,337)
Loan to associate - - - (21,551)
Proceeds on disposal - - - 44,878
Settlement of contingent - - - (15,700)
consideration
Changes in debtors and creditors 63,136 (15,409) (22,133) 15,444
relating to investing activities
Net cash used in investing (76,168) (75,865) (446,503) (110,011)
activities
Financing activities
Proceeds from issuance of shares - - 328 143
(Increase) / decrease in - (340) (3,226) (4,049)
restricted cash
Derivatives (3,249) (2,485) (12,876) (2,485)
Loan repayment - - (115,000) -
Loan draw down 58,123 - 434,041 -
Bank interest & charges (2,816) - (8,321) -
Net cash from/used in financing 52,058 (2,825) 294,946 (6,391)
activities
Currency translation differences 928 816 (4,276) (155)
relating to cash
Increase / (decrease) in cash and 46,679 (55,042) 42,396 (38,702)
cash equiv.
Cash and cash equivalents, 27,091 111,885 31,374 95,545
beginning of period
Cash and cash equivalents, end of 73,770 56,843 73,770 56,843
period
The accompanying notes on pages 6 to 23 are an integral part of the
financial statements.
1. NATURE OF OPERATIONS
Ithaca Energy Inc. (the "Corporation" or "Ithaca"), incorporated and
domiciled in Alberta, Canada on 27 April 2004, is a publicly traded
company involved in the exploration, development and production of oil
and gas in the North Sea. The Corporation's registered office is 1600,
333 - 7th Avenue S.W., Calgary, Alberta, Canada, T2P 2Z1. The
Corporation's shares trade on the Toronto Stock Exchange in Canada and
the London Stock Exchange's Alternative Investment Market in the United
Kingdom under the symbol "IAE".
2. BASIS OF PREPARATION
These interim consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS)
applicable to the preparation of interim financial statements,
including IAS 34 Interim Financial Reporting. These interim
consolidated financial statements do not include all the necessary
annual disclosures in accordance with IFRS.
The policies applied in these condensed interim consolidated financial
statements are based on IFRS issued and outstanding as of 8 November
2013, the date the Board of Directors approved the statements. Any
subsequent changes to IFRS that are given effect in the Corporation's
annual consolidated financial statements for the year ending 31
December 2013 could result in restatement of these interim consolidated
financial statements.
The condensed interim consolidated financial statements should be read
in conjunction with the Corporation's annual financial statements for
the year ended 31 December 2012.
3. SIGNIFICANT ACCOUNTING POLICIES, JUDGEMENTS AND ESTIMATION
UNCERTAINTY
Basis of measurement
The consolidated financial statements have been prepared under the
historical cost convention, except for the revaluation of certain
financial assets and financial liabilities (under IFRS) to fair value,
including derivative instruments.
Basis of consolidation
The consolidated financial statements of the Corporation include the
accounts of Ithaca Energy Inc. and all wholly-owned subsidiaries as
listed per note 27. Ithaca has seventeen wholly-owned subsidiaries,
thirteen of which were acquired on 19 April 2013 as part of the
acquisition of Valiant Petroleum PLC ("Valiant"). The consolidated
financial statements include the Valiant group of companies from 19
April 2013 only (being the acquisition date). All inter-company
transactions and balances have been eliminated on consolidation.
A subsidiary is an entity which the Corporation controls by having the
power to govern the financial and operating policies. The existence and
effect of potential voting rights that are currently exercisable or
convertible are considered when assessing whether Ithaca controls
another entity. A subsidiary is fully consolidated from the date on
which control is obtained by Ithaca and is de-consolidated from the
date that control ceases.
Investments in associates
Interests in entities over which Ithaca has significant influence, but
not control or joint control, are accounted for using the equity
method. Ithaca's share of equity investments' results are recorded in
the consolidated statement of income.
Business Combinations
Business combinations are accounted for using the acquisition method.
The cost of an acquisition is measured as the fair value of the assets
acquired, equity instruments issued and liabilities incurred or assumed
at the date of completion of the acquisition. Acquisition costs
incurred are expensed and included in administrative expenses.
Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair
values at the acquisition date. The excess of the cost of acquisition
over the fair value of the Corporation's share of the identifiable net
assets acquired is recorded as goodwill. If the cost of the acquisition
is less than the Corporation's share of the net assets acquired, the
difference is recognised directly in the statement of income as
negative goodwill.
Goodwill
Capitalisation
Goodwill acquired through business combinations is initially measured
at cost, being the excess of the aggregate of the consideration
transferred and the amount recognised as the fair value of the
Corporation's share of the identifiable net assets acquired and
liabilities assumed. If this consideration is lower than the fair value
of the identifiable assets acquired, the difference is recognised in
the statement of income.
Impairment
Goodwill is tested annually for impairment and also when circumstances
indicate that the carrying value may be at risk of being impaired.
Impairment is determined for goodwill by assessing the recoverable
amount of each cash generating unit ("CGU") to which the goodwill
relates. Where the recoverable amount of the CGU is less than its
carrying amount, an impairment loss is recognised in the statement of
income. Impairment losses relating to goodwill cannot be reversed in
future periods.
Foreign currency translation
Items included in the financial statements are measured using the
currency of the primary economic environment in which the Corporation
and its subsidiary operate (the 'functional currency'). The
consolidated financial statements are presented in United States
Dollars, which is the Corporation's functional and presentation
currency.
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the statement of income.
Share based payments
The Corporation has a share based payment plan as described in note 19
(c). The expense is recorded in the statement of income or capitalised
for all options granted in the year, with the gross increase recorded
in the share based payment reserve. Compensation costs are based on the
estimated fair values at the time of the grant and the expense or
capitalised amount is recognised over the vesting period of the
options. Upon the exercise of the stock options, consideration paid
together with the amount previously recognised in share based payment
reserve is recorded as an increase in share capital. In the event that
vested options expire unexercised, previously recognised compensation
expense associated with such stock options is not reversed. In the
event that unvested options are forfeited or expired, previously
recognised compensation expense associated with the unvested portion of
such stock options is reversed.
Cash and Cash Equivalents
For the purpose of the statement of cash flow, cash and cash
equivalents include investments with an original maturity of three
months or less.
Restricted cash
Cash that is held for security for bank guarantees is reported in the
balance sheet and cash flow statements separately. If the expected
duration of the restriction is less than twelve months then it is shown
in current assets.
Financial Instruments
All financial instruments, other than those designated as effective
hedging instruments, are initially recognised at fair value in the
statement of financial position. The Corporation's financial
instruments consist of cash, restricted cash, accounts receivable,
deposits, derivatives, accounts payable, accrued liabilities, bank
debt, contingent consideration and the long term liability on the
Beatrice acquisition. The Corporation classifies its financial
instruments into one of the following categories: held-for-trading
financial assets and financial liabilities; held-to-maturity
investments; loans and receivables; and other financial liabilities.
All financial instruments are required to be measured at fair value on
initial recognition. Measurement in subsequent periods is dependent on
the classification of the respective financial instrument.
Held-for-trading financial instruments are subsequently measured at
fair value with changes in fair value recognised in net earnings. All
other categories of financial instruments are measured at amortised
cost using the effective interest method. Cash and cash equivalents are
classified as held-for-trading and are measured at fair value. Accounts
receivable are classified as loans and receivables. Accounts payable,
accrued liabilities, certain other long-term liabilities, and long-term
debt are classified as other financial liabilities. Although the
Corporation does not intend to trade its derivative financial
instruments, they are classified as held-for-trading for accounting
purposes.
Transaction costs that are directly attributable to the acquisition or
issue of a financial asset or liability and original issue discounts on
long-term debt have been included in the carrying value of the related
financial asset or liability and are amortised to consolidated net
earnings over the life of the financial instrument using the effective
interest method.
The Corporation may designate financial instruments as a hedging
instrument for accounting purposes. Hedge accounting requires the
designation of a hedging relationship, including a hedged and a hedging
item, identification of the risk exposure being hedged and an
expectation that the hedging relationship will be highly effective
throughout its term.
The Corporation assesses, both at the hedge's inception and on an
ongoing basis, whether the derivative financial instruments designated
as hedges are highly effective in offsetting changes in cash flows of
the hedged items. The effective portion of the gains and losses on cash
flow hedges is recorded in Other Comprehensive Income until the hedged
transaction is recognised in net earnings. Any hedge ineffectiveness is
immediately recognised in net earnings. When the hedged transaction is
recognised in net earnings, the fair value of the associated cash flow
hedging item is reclassified from other reserves into net earnings.
Hedge accounting is discontinued on a prospective basis when the
hedging relationship no longer qualifies for hedge accounting.
Analysis of the fair values of financial instruments and further
details as to how they are measured are provided in notes 25 to 27.
Inventory
Inventories of materials and product inventory supplies, other than oil
and gas inventories, are stated at the lower of cost and net realisable
value. Cost is determined on the first-in, first-out method. Oil and
gas inventories are stated at fair value less cost to sell.
Property, Plant and Equipment
Oil and gas expenditure - exploration and evaluation assets
Capitalisation
Pre-acquisition costs on oil and gas assets are recognised in the
statement of income when incurred. Costs incurred after rights to
explore have been obtained, such as geological and geophysical surveys,
drilling and commercial appraisal costs and other directly attributable
costs of exploration and evaluation including technical,
administrative and share based payment expenses are capitalised as
intangible exploration and evaluation ("E&E") assets.
E&E costs are not amortised prior to the conclusion of evaluation
activities. At completion of evaluation activities, if technical
feasibility is demonstrated and commercial reserves are discovered
then, following development sanction, the carrying value of the E&E
asset is reclassified as a development and production ("D&P") asset,
but only after the carrying value is assessed for impairment and where
appropriate its carrying value adjusted. If after completion of
evaluation activities in an area, it is not possible to determine
technical feasibility and commercial viability or if the legal right to
explore expires or if the Corporation decides not to continue
exploration and evaluation activity, then the costs of such
unsuccessful exploration and evaluation is written off to the statement
of income in the period the relevant events occur.
Impairment
The Corporation's oil and gas assets are analysed into CGUs for
impairment review purposes, with E&E asset impairment testing being
performed at a grouped CGU level. The current E&E CGU consists of the
Corporation's whole E&E portfolio. E&E assets are reviewed for
impairment when circumstances arise which indicate that the carrying
value of an E&E asset exceeds the recoverable amount. When reviewing E&E
assets for impairment, the combined carrying value of the grouped
CGU is compared with the grouped CGU's recoverable amount. The
recoverable amount of a grouped CGU is determined as the higher of its
fair value less costs to sell and value in use. Impairment losses
resulting from an impairment review are written off to the statement of
income.
Oil and gas expenditure - development and production assets
Capitalisation
Costs of bringing a field into production, including the cost of
facilities, wells and sub-sea equipment, direct costs including staff
costs and share based payment expense together with E&E assets
reclassified in accordance with the above policy, are capitalised as a
D&P asset. Normally each individual field development will form an
individual D&P asset but there may be cases, such as phased
developments, or multiple fields around a single production facility
when fields are grouped together to form a single D&P asset.
Depreciation
All costs relating to a development are accumulated and not depreciated
until the commencement of production. Depreciation is calculated on a
unit of production basis based on the proved and probable reserves of
the asset. Any re-assessment of reserves affects the depreciation rate
prospectively. Significant items of plant and equipment will normally
be fully depreciated over the life of the field. However, these items
are assessed to consider if their useful lives differ from the expected
life of the D&P asset and should this occur a different depreciation
rate would be charged.
Impairment
A review is carried out each reporting date for any indication that the
carrying value of the Corporation's D&P assets may be impaired. For D&P
assets where there are such indications, an impairment test is carried
out on the CGU. Each CGU is identified in accordance with IAS 36. The
Corporation's CGUs are those assets which generate largely independent
cash flows and are normally, but not always, single developments or
production areas. The impairment test involves comparing the carrying
value with the recoverable value of an asset. The recoverable amount of
an asset is determined as the higher of its fair value less costs to
sell and value in use, where the value in use is determined from
estimated future net cash flows. Any additional depreciation resulting
from the impairment testing is charged to the statement of income.
Non Oil and Natural Gas Operations
Computer and office equipment is recorded at cost and depreciated over
its estimated useful life on a straight-line basis over three years.
Furniture and fixtures are recorded at cost and depreciated over their
estimated useful lives on a straight-line basis over five years.
Decommissioning liabilities
The Corporation records the present value of legal obligations
associated with the retirement of long term tangible assets, such as
producing well sites and processing plants, in the period in which they
are incurred with a corresponding increase in the carrying amount of
the related long term asset. The obligation generally arises when the
asset is installed or the ground/environment is disturbed at the field
location. In subsequent periods, the asset is adjusted for any changes
in the estimated amount or timing of the settlement of the obligations.
The carrying amounts of the associated assets are depleted using the
unit of production method, in accordance with the depreciation policy
for development and production assets. Actual costs to retire tangible
assets are deducted from the liability as incurred.
Contingent consideration
Contingent consideration is accounted for as a financial liability and
measured at fair value at the date of acquisition with any subsequent
remeasurements recognised either in the statement of income or in other
comprehensive income in accordance with IAS 39.
Taxation
Current income tax
Current income tax assets and liabilities are measured at the amount
expected to be recovered from or paid to the taxation authorities. The
tax rates and tax laws used to compute the amounts are those that are
enacted or substantively enacted by the reporting date.
Deferred income tax
Deferred tax is recognised for all deductible temporary differences and
the carry-forward of unused tax losses. Deferred tax assets and
liabilities are measured using enacted or substantively enacted income
tax rates expected to apply to taxable income in the years in which
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in rates is
included in earnings in the period of the enactment date. Deferred tax
assets are recorded in the consolidated financial statements if
realisation is considered more likely than not.
Recent accounting pronouncements
In May 2011, the IASB issued the following standards: IFRS 10,
Consolidated Financial Statements ("IFRS 10"), IFRS 11, Joint
Arrangements ("IFRS 11"), IFRS 12, Disclosure of Interests in Other
Entities ("IFRS 12"), IAS 27, Separate Financial Statements ("IAS 27"),
IFRS 13, Fair Value Measurement ("IFRS 13") and amended IAS 28,
Investments in Associates and Joint Ventures ("IAS 28"). Each of the
new standards is effective for annual periods beginning on or after 1
January 2013. There has been no material impact from the adoption of
the new and amended standards on the Corporation's financial
statements.
Significant accounting judgements and estimation uncertainties
The preparation of financial statements in conformity with IFRS
requires management to make estimates and assumptions regarding certain
assets, liabilities, revenues and expenses. Such estimates must often
be made based on unsettled transactions and other events and a precise
determination of many assets and liabilities is dependent upon future
events. Actual results may differ from estimated amounts.
The amounts recorded for depletion, depreciation of property and
equipment, long-term liability, stock-based compensation, contingent
consideration, decommissioning liabilities, derivatives and deferred
taxes are based on estimates. The depreciation charge and any
impairment tests are based on estimates of proved and probable
reserves, production rates, prices, future costs and other relevant
assumptions. By their nature, these estimates are subject to
measurement uncertainty and the effect on the financial statements of
changes in such estimates in future periods could be material. Further
information on each of these estimates is included within the notes to
the financial statements.
4. REVENUE
Three months ended Nine months ended
30 Sept 30 Sept
2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000
Oil sales 111,289 38,227 292,506 107,328
Gas sales 2,007 2,040 7,231 6,620
Condensate sales 56 98 328 405
Other income 760 1,214 2,176 3,559
114,112 41,579 302,241 117,912
5. COST OF SALES
Three months Nine months ended
ended 30 Sept
30 Sept
2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000
Operating costs (41,893) (20,903) (108,275) (52,031)
Oil purchases (34) - (981) -
Movement in oil and gas inventory 6,915 8,370 (14,798) 7,989
Depletion, depreciation and (42,279) (14,563) (103,144) (39,040)
amortisation
(77,291) (27,096) (227,198) (83,082)
6. ADMINISTRATIVE EXPENSES
Three months Nine months
ended ended
30 Sept 30 Sept
2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000
General & administrative (1,315) (462) (6,731) (2,566)
Non-recurring Valiant acquisition - - (10,235) -
related costs
Share based payment (203) (62) (865) (401)
(1,518) (524) (17,831) (2,967)
7. FINANCE COSTS
Three months ended Nine months
30 Sept ended
30 Sept
2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000
Accretion (1,375) (453) (2,965) (1,272)
Bank charges (2,949) (219) (7,409) (264)
Non-operated asset finance fees (40) (25) (82) (38)
Loan fee amortisation (592) - (1,777) (494)
(4,956) (697) (12,233) (2,068)
8. RESTRICTED CASH
30 Sept 31 Dec
2013 2012
US$'000 US$'000
Security 3,426 2
3,426 2
The above represents cash backed letters of credit at 30 September
2013.
9. INVENTORY
30 Sept 31 Dec 2013 2012
US$'000 US$'000
Crude oil inventory 27,891 15,865
Materials inventory 215 13
28,106 15,878
10. EXPLORATION AND EVALUATION ASSETS
US$'000
At 1 January 2012 22,689
Additions 38,188
Write offs/relinquishments (4,261)
Disposals (9,226)
At 31 December 2012 47,390
Additions 20,979
Write offs/relinquishments (953)
At 30 September 2013 67,416
Following completion of geotechnical evaluation activity, certain
licences were declared unsuccessful and certain prospects were declared
non-commercial and therefore the related expenditure of $1.0 million
was expensed in the nine months to 30 September 2013.
11. PROPERY, PLANT AND EQUIPMENT
Development & Other
Production fixed
Oil and Gas assets Total
Assets
US$'000 US$'000 US$'000
Cost
At 1 January 2012 623,549 2,292 625,841
Additions 139,383 133 139,516
Disposals (37,912) - (37,912)
At 31 December 2012 725,020 2,425 727,445
Additions 885,046 711 885,757
At 30 September 2013 1,610,066 3,136 1,613,202
DD&A
At 1 January 2012 (53,988) (1,497) (55,485)
Charge for the period (55,770) (402) (56,172)
At 31 December 2012 (109,758) (1,899) (111,657)
Charge for the period (102,852) (292) (103,144)
At 30 September 2013 (212,610) (2,191) (214,801)
NBV at 1 January 2012 569,561 795 570,356
NBV at 1 January 2013 615,262 526 615,788
NBV at 30 September 2013 1,397,456 945 1,398,401
12. GOODWILL
US$'000
Cost
At 1 January 2012, 31 December 2012 & 30 September 2013 985
$1.0 million represents goodwill recognised on the acquisition of gas
assets from GDF in December 2010. As at 30 September 2013, the
recoverable amount of assets acquired from GDF was sufficiently high to
support the carrying value of this goodwill.
13. INVESTMENT IN ASSOCIATES
30 Sept 31 Dec
2013 2012
US$'000 US$'000
Investment in FPF-1 and FPU services 18,337 18,337
Investment in associates comprises shares, acquired by Ithaca Energy
(Holdings) Limited, in FPF-1 Limited and FPU Services Limited as part
of the completion of the Greater Stella Area transactions in 2012.
There has been no change in value during the period with the above
investment reflecting the Company's share of the associates' results.
14. LOAN FACILITY
On 29 June 2012, the Corporation executed a Reserves Based Lending
Facility agreement (the "RBL Facility") for up to $430 million, being
provided by BNP Paribas as Lead Arranger. The loan term was up to five
years and attracted interest at LIBOR plus 3-4.5%.
The Corporation also executed a $350 million bridge loan (the "Bridge
Facility") in April 2013 with BNP Paribas, the Bank of Nova Scotia and
Bank of America Merrill Lynch. The Bridge Facility was available for 12
months and attracted interest of between LIBOR plus 1.0 - 2.25%.
On 1 July 2013, the Corporation signed a NOK 450 million Norwegian
Exploration Financing Facility (the "Norwegian Facility"). Under the
Norwegian tax regime, 78% of exploration, appraisal and supporting
expenditure resulting from operations on the Norwegian Continental
Shelf is refunded by the Government in the December of the year
following the year the costs were incurred. This is a conventional tax
refund facility on industry standard terms
The Corporation is subject to financial and operating covenants related
to the Facility and the Bridge Facility. Failure to meet the terms of
one or more of these covenants may constitute an event of default as
defined in the facility agreements, potentially resulting in
accelerated repayment of the debt obligations.
The Corporation is in compliance with its financial and operating
covenants.
Security provided against the loan
Security provided against the Facility is in the form of a floating
charge over all assets of the Ithaca group pre Valiant acquisition.
Security provided against the Bridge Facility is in the form of a
floating charge over all former Valiant assets.
As at 30 September 2013, $50 million was drawn down under the RBL
Facility, $350 million was drawn down under the Bridge Facility and
approximately $34 million was drawn under the Norwegian Facility. The
$427 million in the balance sheet represents amounts drawn down net of
unamortised loan fees.
Post quarter end, in October 2013, the Corporation increased its
existing Facility to $610 million with enhanced terms including reduced
margin costs (LIBOR plus 2.75%-3%) and greater flexibility over future
unallocated capital. This has enabled retirement of the aforementioned
$350 million Bridge Facility.
The Corporation also established a new five year $100 million corporate
facility in October 2013 with a term of up to 5 years which attracts
interst at LIBOR plus 4.15%.
15. EXPLORATION OBLIGATIONS
30 Sept 31 Dec
2013 2012
US$'000 US$'000
Exploration obligations 21,485 -
The above reflects the fair value of E&E commitments assumed as part of
the Valiant transaction. During the 3 months to 30 September 2013,
$26.8 million was released reflecting expenditure incurred in the
period as well as the partial release of the Handcross obligation post
farm-out to Euroil Exploration Limited, a subsidiary of Edison
International SpA.
16. DECOMMISSIONING LIABILITIES
30 Sept 31 Dec
2013 2012
US$'000 US$'000
Balance, beginning of period 52,834 39,382
Additions 105,229 9,613
Accretion 2,965 1,777
Revision to estimates (1,014) 2,062
Balance, end of period 160,014 52,834
The total future decommissioning liability was calculated by management
based on its net ownership interest in all wells and facilities,
estimated costs to reclaim and abandon wells and facilities and the
estimated timing of the costs to be incurred in future periods. The
Corporation uses a risk free rate of 3.8 percent (31 December 2012: 3.8
percent) and an inflation rate of 2.1 percent (31 December 2012: 2.1
percent) over the varying lives of the assets to calculate the present
value of the decommissioning liabilities. These costs are expected to
be incurred at various intervals over the next 17 years.
Additions in the period primarily relate to the acquisition of Valiant
and the development of Stella.
The economic life and the timing of the obligations are dependent on
Government legislation, commodity price and the future production
profiles of the respective production and development facilities. Note
that upon the acquisition of the Beatrice Field in November 2008, the
Corporation did not assume the decommissioning liabilities.
17. OTHER LONG TERM LIABILITIES
30 Sept 31 Dec
2013 2012
US$'000 US$'000
Balance, beginning of period 3,018 2,785
Revaluation in the period (63) 233
Balance, end of period 2,955 3,018
On completion of the acquisition of the Beatrice Facilities on 10
November 2008 there were 75,000 barrels of oil in an oil storage tank
at the Nigg Terminal. This volume of oil is required to be in the
storage tank when the Beatrice Facilities are re-transferred. This
volume of oil is valued at the price on the forward oil price curve at
the expected date of re-transfer and discounted. The liability is
subject to revaluation at each financial period end.
18. CONTINGENT CONSIDERATION
30 Sept 31 Dec
2013 2012
US$'000 US$'000
Balance, beginning of period 4,000 24,580
Revision to estimates - 1,295
Release - (21,875)
Balance, end of period 4,000 4,000
The contingent consideration at the end of the period relates to the
acquisition of the Stella field and is payable upon first oil.
19. SHARE CAPITAL
No. of ordinary Amount
Authorised share capital 000 US$'000
At 31 December 2012 and 30 September 2013 Unlimited -
(a) Issued
The issued share capital is as follows:
Issued Number of common Amount
shares
US$'000
Balance 1 January 2012 259,164,461 429,502
Issued for cash - options exercised 755,542 1,020
Transfer from Share based payment reserve on - 796
options exercised
Balance 31 December 2012 259,920,003 431,318
Share issue 56,952,321 93,005
Issued for cash - options exercised 493,334 331
Transfer from Share based payment reserve on - 254
options exercised
Balance 30 September 2013 317,365,658 524,908
(b) Stock options
In the quarter ended 30 September 2013, the Corporation's Board of
Directors did not grant any new options.
In the quarter ended 31 March 2013, the Corporation's Board of
Directors granted 90,000 options at a weighted average exercise price
of $2.00 (C$1.97).
The Corporation's stock options and exercise prices are denominated in
Canadian Dollars when granted. As at 30 September 2013, 19,314,630
stock options to purchase common shares were outstanding, having an
exercise price range of $0.20 to $2.28 (C$0.25 to C$2.31) per share and
a vesting period of up to 3 years in the future.
Changes to the Corporation's stock options are summarised as follows:
30 September 2013 31 December 2012
Wt. Avg Wt. Avg
No. of Exercise No. of Exercise
Options Price* Options Price*
Balance, beginning of 20,347,964 $1.63 17,506,839 $1.66
period
Granted 90,000 $2.00 6,045,000 $2.05
Forfeited / expired (630,000) $2.20 (2,448,333) $3.42
Exercised (493,334) $0.63 (755,542) $1.26
Options 19,314,630 $1.64 20,347,964 $1.63
* The weighted average exercise price has been converted into U.S.
dollars based on the foreign exchange rate in effect at the date of
issuance.
The following is a summary of stock options as at 30 September 2013
Options Outstanding
Range of No. of Wt. Avg Wt. Avg
Life Exercise
Exercise Price Options (Years) Price*
$2.22-$2.28 5,090,000 1.3 $2.23
(C$2.25-C$2.31)
$1.49-$2.03 10,026,667 1.8 $1.76
(C$1.54-C$1.99)
$0.20-$0.81 4,197,963 0.1 $0.55
(C$0.25-C$0.87)
19,314,630 1.6 $1.48
Options Exercisable Wt. Avg Wt. Avg
Range of No. of Life Exercise
Exercise Price Options (Years) Price*
$2.22-$2.28 3,260,003 1.3 $2.22
(C$2.25-C$2.31)
$1.49-$2.03 4,528,334 0.4 $1.52
(C$1.54-C$1.99)
$0.20-$0.81 4,197,963 0.1 $0.55
(C$0.25-C$0.87)
11,986,300 1.3 $1.22
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
No. of Wt. Avg Wt. Avg
Range of Options Life Exercise
Exercise Price (Years) Price*
$2.22-$2.70 3,280,003 2.0 $2.22
(C$2.25-C$2.69)
$1.49-$2.03 3,113,338 1.2 $1.53
(C$1.54-C$1.99)
$0.20-$0.81 4,666,297 0.8 $0.80
(C$0.25-C$0.87)
11,059,638 1.3 $1.43
(c) Share based payments
Options granted are accounted for using the fair value method. The
compensation cost during the three months and nine months ended 30
September 2013 for total stock options granted was $1.0 million and
$3.0 million respectively (Q3 2012: $0.8 million, Q3 YTD: $2.4
million). $0.2 million and $0.9 million were charged through the income
statement for share based payment for the three and nine months ended
30 September 2013 respectively, being the Corporation's share of share
based payment chargeable through the income statement. The remainder of
the Corporation's share of share based payment has been capitalised.
The fair value of each stock option granted was estimated at the date
of grant, using the Black-Scholes option pricing model with the
following assumptions:
For the For the
nine months year ended
ended 31 December
30 September 2012
2013
Risk free interest rate 1.30% 0.40%
Expected stock volatility 63% 74%
Expected life of options 3 years 3 years
Weighted Average Fair Value $0.92 $1.08
20. SHARE BASED PAYMENT RESERVE
30 Sept 31 Dec
2013 2012
US$'000 US$'000
Balance, beginning of period 20,340 17,318
Share based payment cost 2,917 3,817
Transfer to share capital on exercise of options (257) (795)
Balance, end of period 23,000 20,340
21. EARNINGS PER SHARE
The calculation of basic earnings per share is based on the profit
after tax and the weighted average number of common shares in issue
during the period. The calculation of diluted earnings per share is
based on the profit after tax and the weighted average number of
potential common shares in issue during the period.
Three months ended 30 Sept Nine months ended 30 Sept
2013 2012 2013 2012
Weighted average 317,365,658 259,346,128 294,617,969 259,236,730
number of
common shares
(basic)
Weighted average 324,563,406 264,573,365 299,807,995 264,632,244
numbers of
common shares
(diluted)
22. TAXATION
Three months ended 30 Sept Nine months ended 30 Sept
2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000
Taxation 8,183 2,924 (7,492) 10,575
23. COMMITMENTS
Operating lease commitments 30 Sept 31 Dec
2013 2012
US$'000 US$'000
Within one year 13,273 12,759
Two to five years 11,409 18,756
More than five years - 65
Capital commitments 30 Sept 31 Dec
2013 2012
US$'000 US$'000
Capital commitments incurred jointly with other 262,128 111,747
ventures (Ithaca's share)
24. FINANCIAL INSTRUMENTS
To estimate fair value of financial instruments, the Corporation uses
quoted market prices when available, or industry accepted third-party
models and valuation methodologies that utilise observable market data.
In addition to market information, the Corporation incorporates
transaction specific details that market participants would utilise in
a fair value measurement, including the impact of non-performance risk.
The Corporation characterises inputs used in determining fair value
using a hierarchy that prioritises inputs depending on the degree to
which they are observable. However, these fair value estimates may not
necessarily be indicative of the amounts that could be realised or
settled in a current market transaction. The three levels of the fair
value hierarchy are as follows:
- Level 1 - inputs represent quoted prices in active markets for
identical assets or liabilities (for example, exchange-traded commodity
derivatives). Active markets are those in which transactions occur in
sufficient frequency and volume to provide pricing information on an
ongoing basis.
- Level 2 - inputs other than quoted prices included within Level 1
that are observable, either directly or indirectly, as of the reporting
date. Level 2 valuations are based on inputs, including quoted forward
prices for commodities, market interest rates, and volatility factors,
which can be observed or corroborated in the marketplace. The
Corporation obtains information from sources such as the New York
Mercantile Exchange and independent price publications.
- Level 3 - inputs that are less observable, unavailable or where the
observable data does not support the majority of the instrument's fair
value.
In forming estimates, the Corporation utilises the most observable
inputs available for valuation purposes. If a fair value measurement
reflects inputs of different levels within the hierarchy, the
measurement is categorised based upon the lowest level of input that is
significant to the fair value measurement. The valuation of
over-the-counter financial swaps and collars is based on similar
transactions observable in active markets or industry standard models
that primarily rely on market observable inputs. Substantially all of
the assumptions for industry standard models are observable in active
markets throughout the full term of the instrument. These are
categorised as Level 2.
The following table presents the Corporation's material financial
instruments measured at fair value for each hierarchy level as of 30
September 2013:
Level 1 Level 2 Level 3 Total Fair Value
US$'000 US$'000 US$'000 US$'000
Derivative financial - 12,150 - 12,150
instrument asset
Long term liability - - (2,955) (2,955)
on Beatrice acquisition
Contingent consideration - (4,000) - (4,000)
Derivative financial - (8,253) - (8,253)
instrument liability
The table below presents the total gain / (loss) on financial
instruments that has been disclosed through the statement of net and
comprehensive income:
Three months ended Nine months ended
30 Sept 30 Sept
2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000
Revaluation of forex forward 9,723 166 8,251 707
contracts
Revaluation of gas contract - 610 - 1,368
Revaluation of other long term (90) (86) 64 (115)
liability
Revaluation of commodity hedges (22,945) (13,617) (25,389) 3,241
(13,312) (12,927) (17,074) 5,201
Realised gain/(loss) on (3,687) 888 9,873 2,597
commodity hedges
Realised gain on forex 1,185 50 1,729 118
contracts
(2,502) 938 11,602 2,715
Contingent consideration - - - (1,295)
Total gain/(loss) on financial (15,814) (11,989) (5,472) 6,621
instruments
The Corporation has identified that it is exposed principally to these
areas of market risk.
i) Commodity Risk
The table below presents the total gain / (loss) on commodity hedges
that has been disclosed through the statement of net and comprehensive
income:
Three months ended 30 Sept
2013 2012
US$'000 US$'000
Revaluation of commodity hedges (22,945) (13,617)
Realised gain/(loss) on commodity hedges (3,687) 888
Total (loss) on commodity hedges (26,632) (12,729)
Commodity price risk related to crude oil prices is the Corporation's
most significant market risk exposure. Crude oil prices and quality
differentials are influenced by worldwide factors such as OPEC actions,
political events and supply and demand fundamentals. The Corporation is
also exposed to natural gas price movements on uncontracted gas sales.
Natural gas prices, in addition to the worldwide factors noted above,
can also be influenced by local market conditions. The Corporation's
expenditures are subject to the effects of inflation, and prices
received for the product sold are not readily adjustable to cover any
increase in expenses from inflation. The Corporation may periodically
use different types of derivative instruments to manage its exposure to
price volatility, thus mitigating fluctuations in commodity-related
cash flows.
The below represents commodity hedges in place:
Derivative Term Volume Average price
Oil puts Oct 13 - Sept 14 930,300 bbls $104/bbl
Oil swaps Oct 13 - Dec 14 2,472,809 bbls $102/bbl
Gas swaps Oct 13 - Dec 14 1,974,000 therms 66.79p/therm
ii) Interest Risk
Calculation of interest payments for the RBL Facility agreement as well
as the Bridge Facility incorporates LIBOR whilst the Norwegian Facility
incorporates NIBOR. The Corporation will therefore be exposed to
interest rate risk to the extent that LIBOR/NIBOR may fluctuate. The
Corporation will evaluate its annual forward cash flow requirements on
a rolling monthly basis.
iii) Foreign Exchange Rate Risk
The table below presents the total (loss) on foreign exchange financial
instruments that has been disclosed through the statement of net and
comprehensive income:
Three months ended 30 Sept
2013 2012
US$'000 US$'000
Revaluation of foreign exchange forward contracts 9,723 166
Realised gain on foreign exchange forward contracts 1,185 50
Total gain on forex forward contracts 10,908 216
The Corporation is exposed to foreign exchange risks to the extent it
transacts in various currencies, while measuring and reporting its
results in US Dollars. Since time passes between the recording of a
receivable or payable transaction and its collection or payment, the
Corporation is exposed to gains or losses on non USD amounts and on
balance sheet translation of monetary accounts denominated in non USD
amounts upon spot rate fluctuations from quarter to quarter.
The below represents foreign exchange financial instruments in place:
Derivative Term Value Protection rate Trigger rate
Forward plus Oct 13 - GBP4 million/month $1.59/GBP1.00 $1.50/GBP1.00
Dec 13
Forward Oct 13 - GBP65 million $1.52/GBP1.00 N/A
Jan 14
Forward Oct 13 - EUR25 million $1.29/EUR1.00 N/A
Dec 13
iv) Credit Risk
The Corporation's accounts receivable with customers in the oil and gas
industry are subject to normal industry credit risks and are unsecured.
All of its oil production from the Beatrice, Jacky and Athena fields is
sold to BP Oil International Limited. Oil production from Cook, Broom,
Dons, Causeway and Fionn is sold to Shell Trading International Ltd.
Anglia and Topaz gas production is currently sold through three
contracts to RWE NPower PLC and Hess Energy Gas Power (UK) Ltd. Cook
gas is sold to Shell UK Ltd and Esso Exploration & Production UK Ltd.
The Corporation assesses partners' credit worthiness before entering
into farm-in or joint venture agreements. In the past, the Corporation
has not experienced credit loss in the collection of accounts
receivable. As the Corporation's exploration, drilling and development
activities expand with existing and new joint venture partners, the
Corporation will assess and continuously update its management of
associated credit risk and related procedures.
The Corporation regularly monitors all customer receivable balances
outstanding in excess of 90 days. As at 30 September 2013 substantially
all accounts receivables are current, being defined as less than 90
days. The Corporation has no allowance for doubtful accounts as at 30
September 2013 (31 December 2012: $Nil).
The Corporation may be exposed to certain losses in the event that
counterparties to derivative financial instruments are unable to meet
the terms of the contracts. The Corporation's exposure is limited to
those counterparties holding derivative contracts with positive fair
values at the reporting date. As at 30 September 2013, exposure is
$12.2 million (31 December 2012: $8.3 million).
The Corporation also has credit risk arising from cash and cash
equivalents held with banks and financial institutions. The maximum
credit exposure associated with financial assets is the carrying
values.
v) Liquidity Risk
Liquidity risk includes the risk that as a result of its operational
liquidity requirements the Corporation will not have sufficient funds
to settle a transaction on the due date. The Corporation manages
liquidity risk by maintaining adequate cash reserves, banking
facilities, and by considering medium and future requirements by
continuously monitoring forecast and actual cash flows. The Corporation
considers the maturity profiles of its financial assets and
liabilities. As at 30 September 2013 substantially all accounts payable
are current.
The following table shows the timing of cash outflows relating to trade
and other payables.
Within 1 year 1 to 5 years
US$'000 US$'000
Accounts payable and accrued liabilities 408,604 -
Other long term liabilities - 2,955
408,604 2,955
25. DERIVATIVE FINANCIAL INSTRUMENTS
30 Sept 31 December
2013 2012
US$'000 US$'000
Oil swaps (7,648) 2,497
Put options 3,387 5,667
Gas swaps 48 -
Embedded derivative - 87
Foreign exchange forward contract 8,110 - 3,897
8,251
26. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
Financial instruments of the Corporation consist mainly of cash and
cash equivalents, receivables, payables, loans and financial derivative
contracts, all of which are included in these financial statements. At
30 September 2013, the classification of financial instruments and the
carrying amounts reported on the balance sheet and their estimated fair
values are as follows:
30 September 2013 31 December 2012
US$'000 US$'000
Classification
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents (Held 73,770 73,770 31,374 31,374
for trading)
Restricted cash 3,426 3,426 2 2
Derivative financial 12,150 12,150 8,251 8,251
instruments (Held for trading)
Accounts receivable (Loans and 300,424 300,424 159,195 159,195
Receivables)
Deposits 25,255 25,255 14,754 14,754
Bank debt (Loans and (426,574) (426,574) - -
Receivables)
Contingent consideration (4,000) (4,000) (4,000) (4,000)
Derivative financial (8,253) (8,253) - -
instruments (Held for trading)
Other long term liabilities (2,955) (2,955) (3,018) (3,018)
Accounts payable (Other (408,604) (408,604) (205,635) (205,635)
financial liabilities)
27. RELATED PARTY TRANSACTIONS
The consolidated financial statements include the financial statements
of Ithaca Energy Inc and the subsidiaries listed in the following
table:
Country of % equity interest at
incorporation 30 Sep
2013 2012
Ithaca Energy (UK) Limited Scotland 100% 100%
Ithaca Minerals (North Sea) Scotland 100% 100%
Limited
Ithaca Energy (Holdings) Bermuda 100% Nil
Limited
Ithaca Energy Holdings (UK) Scotland 100% Nil
Limited
Ithaca Petroleum PLC England and Wales 100% Nil
Ithaca North Sea Limited England and Wales 100% Nil
Ithaca Exploration Limited England and Wales 100% Nil
Ithaca Causeway Limited England and Wales 100% Nil
Ithaca Gamma Limited England and Wales 100% Nil
Ithaca Alpha Limited Northern Ireland 100% Nil
Ithaca Epsilon Limited England and Wales 100% Nil
Ithaca Delta Limited England and Wales 100% Nil
Ithaca Petroleum Holdings AS Norway 100% Nil
Ithaca Petroleum Norge AS Norway 100% Nil
Ithaca Technology AS Norway 100% Nil
Ithaca AS Norway 100% Nil
Ithaca Petroleum EHF Iceland 100% Nil
Transactions between subsidiaries are eliminated on consolidation.
The following table provides the total amount of transactions that have
been entered into with related parties during the nine month period
ending 30 September 2013 and 30 September 2012, as well as balances
with related parties as of 30 September 2013 and 31 December 2012:
Sales Purchases Accounts Accounts
receivable payable
US$'000 US$'000 US$'000 US$'000
Burstall Winger 2013 - 323 - -
LLP
2012 - 138 - -
Loans to related parties Amounts owed from related parties
30 Sept 31 Dec
2013 2012 US$'000
US$'000
FPF-1 Limited 26,346 21,551
28. SEASONALITY
The effect of seasonality on the Corporation's financial results for
any individual quarter is not material.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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