Ithaca Energy Inc.
TSX VENTURE : IAE
AIM : IAE

Ithaca Energy Inc.

April 30, 2007 22:22 ET

Ithaca Energy Reports 2006 Year End Results

LONDON, UNITED KINGDOM and CALGARY, ALBERTA--(CCNMatthews - April 30, 2007) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Ithaca Energy Inc. (TSX VENTURE:IAE)(AIM:IAE), a Canadian independent oil and gas company with exploration and development assets in the UK North Sea, is pleased to announce its financial results and reserves data for the year ended December 31, 2006.

Ithaca enjoyed a particularly successful year, the highlights of which are:

Operations:

- The drilling of a successful first well on its 70% owned Athena prospect which tested at up to 1,330 barrels of oil per day ("bopd"). The well has been cased and suspended as a future producer. Prior to drilling the well, Ithaca entered into a farm-out agreement with EWE Akiengesellschaft ("EWE") for the latter to pay 45% of the well costs in return for a 20% interest. Ithaca then raised US$6.0 million from the Gemini Fund II in a non-recourse financing for the well, to be repaid out of production. As a result, Ithaca paid 28% of the costs of the well and retained a 70% interest in the project. Plans are under way to drill a second well in the third quarter of 2007 and to prepare an application for field development.

- Ithaca participated in a 3-D seismic program on its 90% owned licenses in the Triton area of the Outer Moray Firth which is being interpreted in anticipation of future drilling.

- Ithaca conducted a 3-D seismic program over its 60% owned Morpheus license in the Southern Gas Basin and subsequently farmed out an interest. Under the terms of the agreement, Ithaca will pay for 25% of both a well and the previously shot seismic, and will retain a 34% interest in the project.

- A 2-D seismic program was conducted over the Company's 100% owned Beatrice area license. Drilling is being conducted at present.

- The Company contracted for two drilling slots on a Jack-up rig and one on a Semi-submersible rig for drilling in 2007.

- Ithaca was awarded 7 new blocks in the 24th Licensing Round, adding several new prospects as well as expanding existing areas of development.

- Sproule International prepared an independent engineering evaluation in accordance with NI 51-101 for reserve volumes and values as at December 31, 2006.

-- Total Proven plus Probable plus Possible reserves net to the Company's interest were 28.50 MMBoe at December 31, 2006. Comparative numbers are not available as Possible reserves were not evaluated by Gaffney Cline & Associates in 2005.

-- At December 31, 2005, Ithaca's net interest in the Barbara gas property was evaluated by GCA as containing Proven reserves of 1.6 MMBoe. On re-evaluation, Sproule have chosen to reclassify the reserves as Probable and Possible as at December 31, 2006, thereby eliminating Ithaca's net Proven reserves when compared with 2005.

-- Total Probable reserves net to the Company's interest at December 31, 2006 were 20.02 MMBoe compared to 22.73 MMBoe at December 31, 2005, a decrease of 11.92% primarily as a result of the farmout at Athena as well as the re-evaluation of reserves at Barbara.

-- Possible reserves net to the Corporation's interest were evaluated by Sproule to be 8.49 MMBoe at December 31, 2006. Comparative numbers are not available as Possible reserves were not evaluated in 2005 by GCA.

-- Sproule evaluated the commerciality of the pools at December 31, 2006 and calculated a net present value of total Probable reserves net to Ithaca's interest, discounted at 10% per annum, of US$343.97 million before tax and a comparable after tax net present value of US$166.33 million. Total Probable and Possible reserves net to Ithaca's interest are evaluated as having a value of US$515.20 million before tax and $252.62 million after tax. The values were computed using forecast prices and costs.

Financial:

- While expanding its operations in the UK North Sea, Ithaca significantly strengthened its balance sheet during 2006.

-- On June 5, 2006, the Company successfully completed an initial public offering raising gross proceeds of US$54.1 million listing its shares on the TSX-Venture Exchange and on June 6, 2006, on the London Stock Exchange's AIM market.

-- On September 18, the Company entered into an innovative financing arrangement with Gemini Fund II, raising US$6.0 million in non-recourse funding related to the Company's Athena well 14/18b-15.

-- On December 19, 2006, the Company closed a second equity issue, raising gross proceeds of US$45.9 million.

- Property, plant and equipment increased from US$8.1 million at December 31, 2005, to US$40.3 million at December 31, 2006 primarily due to increased investment in the Company's oil and gas properties.

- Working capital was significantly higher at December 31, 2006, at approximately $67.3 million versus $8.8 million for 2005.

- A net loss increased to approximately US$4.3 million in 2006 from approximately US$1.0 million in 2005. The loss reflects the Corporation's increased evaluation, acquisition and exploration activity in the UK North Sea. The Corporation has been steadily increasing operations since the start of the year, and this has resulted in an increase in payroll, other administration costs and an increase in stock-based compensation expense.

- Ithaca began the year with 26,798,556 common shares outstanding; and as at December 31, 2006 it had 82,904,475 common shares outstanding.

Commenting on the 2006 results, Lawrie Payne, Chief Executive Officer, said:

"Ithaca has made a significant amount of progress in 2006. We successfully drilled and operated our first well at Athena, which has been cased for future production. We also acquired and are currently processing a significant amount of seismic data on several of the Company's properties which is anticipated to provide future drilling opportunities. Ithaca has been well received by capital markets, successfully completing an Initial Public Offering and a second share placement, providing sufficient funds to capitalize on the opportunities available to the Company. We have also successfully farmed out a number of licenses, providing financial leverage while exercising risk management and retaining a strong equity position in each."

Brad G. Gunn, Ithaca Energy's Chief Financial Officer commented:

"2006 was an enormous year for the Company. Assets grew by 537% and current assets grew by 648%. The financial and property assets established in 2006 places Ithaca in a strong position to develop further in 2007."

Ithaca Energy Inc. has filed its Annual Information Form for the year ended December 31, 2006, which includes the following reports required under National Instrument 51-101 Standard of Disclosure for Oil and Gas Activities: Form 51-101F1 Statement of Reserves Data and Other Oil and Gas Information; Form 51-101F2 Reports of Reserve Data by Independent Qualified Reserves Evaluators; and Form 51-101F3 Report of Management and Directors on Oil and Gas Disclosure. In addition to the Annual Information Form, the Company has also filed its Management Discussion and Analysis, and Audited Financial Statements. These documents can be found for viewing by electronic means on the System for Electronic Document and Analysis Retrieval at www.sedar.com.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION

The following is management's discussion and analysis ("MD&A") of the operating and financial results of Ithaca Energy Inc. (the "Corporation" or "Ithaca") for the year ended December 31, 2006. The information is provided as of April 30, 2007. The 2006 results have been compared to the results of 2005. All figures and the comparative figures contained herein are expressed in US dollars unless otherwise stated.

This discussion and analysis should be read in conjunction with the Corporation's audited consolidated financial statements as at December 31, 2006 and 2005 and for each of the years in the two year period ended December 31, 2006, together with the accompanying notes, and the December 31, 2006 Annual Information Form. These documents and additional information about Ithaca Energy Inc. are available on SEDAR at www.sedar.com.

Certain statements contained in this discussion and analysis, including estimates of reserves, estimates of future cash flows and estimates of future production as well as other statements about anticipated future events or results, are forward-looking statements. Forward-looking statements often, but not always, are identified by the use of words such as "seek", "anticipate", "believe", "plan", "estimate", "expect" "targeting" and "intend" and statements that an event or result "may", "will", "should", "could" or "might" occur or be achieved and other similar expressions. The forward-looking statements that are contained in this discussion and analysis involve a number of risks and uncertainties. As a consequence, actual results might differ materially from results forecast or suggested in these forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted.

The information with respect to net present values of future net revenues from reserves presented throughout this discussion and analysis, whether calculated without discount or using a discount rate, are estimated values and do not represent fair market value. It should not be assumed that the net present values of future net revenues from reserves contained in this discussion and analysis are representative of the fair market value of the reserves. There is no assurance that the price and cost assumptions will be attained and variances could be material.

Barrel of oil equivalent (Boe) volumes are reported at 6:1 with 6 MCF equals 1 Boe. All figures are in United States dollars unless otherwise noted.

BUSINESS OF THE CORPORATION

Ithaca Energy is an oil and gas exploration and development corporation active in the United Kingdom's Continental Shelf ("UKCS"). Exploration and development activities are focused on the Inner and Outer Moray Firth, the Central and Southern Gas Basin areas of the UKCS. The goal of Ithaca Energy in the near term is to achieve oil production from the development of existing discoveries on licences held by the Corporation, to originate and participate in exploration on licences held by the Corporation with the potential to make significant contributions to future production, and to consider other opportunities for growth as they are presented to the Corporation. The Corporation is targeting first oil production from its 70% owned Athena field and first gas from its 20% (6.7% expected unitization) interest in the Barbara gas field to commence in 2009.

OVERALL PERFORMANCE

In 2006, Ithaca Energy significantly expanded its operations in the UK North Sea and strengthened its balance sheet. On June 5, 2006, the Corporation successfully completed an initial public offering raising gross proceeds of $54.1 million and listed its shares on the TSX-Venture Exchange and on June 6, 2006, on the London Stock Exchange's AIM market.

Upon completion of the offering, the Corporation secured the Bredford Dolphin semi-submersible drilling rig for a well on its Athena project in the Outer Moray Firth area of the Central UK North Sea. In October 2006, Ithaca commenced and operated its first well, an appraisal of a previous oil discovery named Athena. The well tested up to 1,330 BOPD and was suspended as a future oil producer. The Corporation also participated in two 3-D seismic programs over Corporation licenses in the Triton area of the Moray Firth and Morpheus area in the Southern Gas Basin as well as a 2-D program at Beatrice in the Inner Moray Firth. The Corporation drilled one well in 2006, compared with no drilling activity in 2005 or 2004.

In September 2006, Ithaca Energy secured the GSF Galaxy II jack-up drilling rig for two wells to be drilled in 2007 and the Byford Dolphin semi-submersible drilling rig under a one-well contract which is scheduled to drill a second well at Athena in 2007.

On November 27, 2006, Ithaca received an independent engineering evaluation, prepared in accordance with National Instrument 51-101 ("NI 51-101") from Sproule International Limited of Calgary, Alberta ("Sproule"), of its 70% owned oil discovery at Athena on Block 14/18b in the Outer Moray Firth area of the UKCS. The evaluation was conducted to confirm the results of the 14/18b-15 well and comprised a comprehensive study of the wells, geology and seismic data in the area (the "Sproule October 31, 2006 Report") and estimated the Athena accumulation at October 31, 2006 to be 27.99 million barrels of gross recoverable probable undeveloped reserves or 19.59 million barrels net to Ithaca's 70% interest. These gross reserve estimates represent a 14.7% increase over gross reserves estimated previously by Gaffney Cline & Associates ("GCA") in its report dated May 15, 2006 and effective as at December 31, 2005 (the "GCA Report"). Sproule evaluated the commerciality of the pool and calculated a net present value of Probable reserves net to Ithaca's interest, discounted at 10% per annum, of $314.76 million before tax and a comparable after tax net present value of $165.44 million. Total Probable and Possible reserves are evaluated as having a value of $481.23 million before tax and $254.02 million after tax. The values were computed using escalating Brent pricing.

Ithaca Energy exited 2006 in excellent financial condition. The Corporation had high cash balances at year end as a result of two equity financings and a non-recourse unsecured funding arrangement, all of which closed in 2006. The first issue, which closed on June 5, 2006, raised gross proceeds of approximately $54.1 million, while the second equity issue, which closed on December 19, 2006, raised gross proceeds of approximately $45.9 million. These issues of common shares were used to finance the Corporation's 2006 UK North Sea appraisal and exploration drilling program, for geological and geophysical studies on Corporation Licences and for general corporate purposes. Property, plant and equipment increased from $8.1 million at December 31, 2005, to $40.3 million at December 31, 2006.

Current liabilities increased from $1.1 million at December 31, 2005, to $7.3 million at December 31, 2006, these comprised entirely accounts payable and accrued liabilities. The Corporation had no bank debt in 2006 or comparable periods of 2005. Working capital was significantly higher at December 31, 2006, at approximately $67.3 million versus $8.8 million for 2005. The increase in share capital, shareholders equity and common shares outstanding are also a reflection of the equity financings closed in 2006. The Corporation's 2007 UK North Sea exploration and appraisal drilling program will be funded by its cash reserves and expected future farmout agreements with third parties.

The net loss of $4.3 million increased in 2006 compared with 2005 and 2004. The increase in net loss is due to increased general and administrative expenses and stock-based compensation expense.

Cash flow from operating activities was negative in 2006, as in both 2005 and 2004. Negative cash flow from operating activities result from the Corporation's activity levels in the North Sea and the commensurate overhead related to these activities. This trend is expected to continue in 2007 and 2008. Oil production from Athena and gas production from Barbara are anticipated to commence in 2009 and are expected to reverse this trend.

Sproule prepared an independent engineering evaluation, prepared in accordance with NI 51-101 for reserve volumes and values at December 31, 2006.

Total Proven plus Probable plus Possible reserves net to the Corporation's interest were 28.50 MMBoe at December 31, 2006. Comparative numbers are not available as Possible reserves were not evaluated by GCA in 2005.

At December 31, 2005, Ithaca's net interest in the Barbara gas property was evaluated by GCA as containing Proven reserves of 1.6 MMBoe. Sproule have chosen to reclassify the reserves as Probable and Possible as at December 31, 2006, thereby eliminating Ithaca's net Proven reserves when compared with 2005.

Total Probable reserves net to the Corporation's interest at December 31, 2006 were 20.02 MMBoe compared to 22.73 MMBoe at December 31, 2005, a decrease of 11.92%. While total Proven and Probable gross reserves increased, Proven and Probable reserves net to the Corporation decreased in 2006 due to a farmout at Athena, and a technical revision of reserves at Barbara.

Possible reserves net to the Corporation's interest were evaluated by Sproule to be 8.49 MMBoe at December 31, 2006. Comparative numbers are not available as Possible reserves were not evaluated in 2005 by GCA.

Sproule evaluated the commerciality of the pools at December 31, 2006 and calculated net present value of total Probable reserves net to Ithaca's interest, discounted at 10% per annum, of $343.97 million before tax and a comparable after tax net present value of $166.33 million. Total Probable and Possible reserves net to Ithaca's interest are evaluated as having a value of $515.20 million before tax and $252.62 million after tax. The values were computed using forecast prices and costs.

Complete disclosure of the Corporation's reserves as reported under the guidelines of NI 51-101 can be found in the Corporation's Annual Information Form dated April 27, 2007, as filed on SEDAR at www.sedar.com.

Ithaca Energy's primary focus in 2007 will be the appraisal and development of its 70% owned Athena oil field. In addition, the Corporation will continue its UK North Sea exploration and appraisal drilling program on its Basil, Morpheus, Carna, and Manuel prospects subject to rig availability and securing partner participation. To complete its 2007 development, appraisal, and exploration program, the Corporation has set a capital budget of 4 wells and $55 million.

Ithaca Energy has been able to execute its business plan for the UK North Sea in large part by its ability to access capital through the issuance of equity. The Corporation anticipates that no further equity issues will be required for its planned activities in 2007; however significant capital, beyond current resources, will be required to further the Corporation's anticipated development activities in 2008.

SELECTED ANNUAL INFORMATION

The consolidated financial statements of the Corporation and the financial data contained in MD&A are prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The consolidated financial statements include the accounts of Ithaca Energy Inc. and its wholly-owned subsidiary Ithaca Energy (UK) Limited. All inter-company transactions and balances have been eliminated on consolidation. Part of the Corporation's North Sea oil and gas activities are carried out jointly with others, and the consolidated financial statements reflect only the Corporation's proportionate interest in such activities.

The Corporation's reporting currency is US dollars ("$"); unless indicated otherwise, all amounts are presented in US dollars. The accounting records of the Corporation's foreign subsidiary are maintained in US dollars.



2006 2005 2004

Revenue $ - $ - $ -
Net loss 4,306,335 1,017,304 188,249
Net loss per share 0.09 0.06 0.02
Total assets 114,934,154 18,043,206 634,928
Total long-term liabilities 1,513,000 - -



SUMMARY OF QUARTERLY RESULTS

31-Dec-06 30-Sep-06 30-Jun-06 31-Mar-06

REVENUE $ - $ - $ - $ -

COSTS AND EXPENSES
General and
administrative 1,270,355 1,339,445 967,250 763,876
Depreciation 27,769 14,000 14,371 13,629
Interest income (729,228) (374,925) (59,964) (12,075)
Loss on foreign
exchange 653,522 338,879 52,369 27,062
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NET LOSS 1,222,418 1,317,399 974,026 792,492

NET LOSS PER SHARE 0.03 0.02 0.02 0.03



31-Dec-05 30-Sep-05 30-Jun-05 31-Mar-05

REVENUE $ - $ - $ - $ -

COSTS AND EXPENSES
General and
administrative 494,692 242,254 274,169 76,569
Depreciation 2,914 1,125 1,125 1,125
Interest income (23,656) (1,822) (885) (1,047)
Loss on foreign
exchange (3,661) (20,562) (25,567) 531
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NET LOSS 470,289 220,995 248,842 77,178

NET LOSS PER SHARE 0.02 0.02 0.03 0.01


RESULTS OF OPERATIONS

The Corporation has had no revenue from operations to date. For the year ended December 31, 2006, the Corporation had a net loss of $4,306,335 compared to a net loss of $1,017,304 for the year ended December 31, 2005. The results reflect the Corporation's increased evaluation, acquisition and exploration activity in the UK North Sea. The Corporation has been steadily increasing operations since the start of the year, and this has resulted in an increase in payroll and other administration costs.

Interest income in the periods under review resulted from interest on bank accounts and short-term deposits, as the Corporation had cash balances due to funds raised. The income is significantly higher in the third quarter than in the previous period as the Corporation was able to invest a portion of the funds raised in the initial public offering. The Corporation holds the majority of its cash reserves in foreign currencies, and is therefore exposed to losses arising from exchange rate fluctuations. In addition, the Corporation issued stock options to Directors and employees in August 2006, which resulted in a stock based compensation charge of $771,962. The total charge for options in 2005 was $112,000.

General and administrative expenses increased significantly in 2006 versus 2005 and 2004 due to increases in staffing levels, support and activity required for the Athena development and ongoing geological and geophysical evaluation activities on the Corporation's exploration and appraisal projects. General and administrative expenses are expected to rise again in 2007. The single most significant expense item in 2006 was stock-based compensation. As in 2006 and prior years, the Corporation continued its compensation policy of combining share options with competitive salaries and benefits packages to attract the best qualified staff. The Corporation continued to issue share options during the year as its share equity base expanded and as it added new employees. Stock-based compensation expense is not expected to increase as rapidly in 2007 as in prior years.

Activity Summary in the UK North Sea

Greater Beatrice Area

The Greater Beatrice Area is located in shallow waters in the Inner Moray Firth area. Ithaca owns a 100% interest in a License surrounding the Talisman owned Beatrice oilfield on which have been identified several prospects including Basil, Polly and Manuel. During 2006 Ithaca acquired significant geological and geophysical data and conducted new 2-D seismic which has been used to further evaluate the prospects. The Corporation has paid a deposit of $18.0 million to secure a jack-up drilling rig for two wells one of which is planned on this property in the first half of 2007. The Corporation is currently in the process of identifying potential partners to fund the further exploration, appraisal and development of this property.

Triton / Poseidon

This 90% owned property is located in the Outer Moray Firth. Work undertaken during the year included the acquisition of a large 3-D seismic survey, for which the Corporation paid $4.3 million. The seismic processing and interpretation is in progress and preliminary results have been favourable. It is expected that a well will be drilled on the property in 2008.

Morpheus

This 60% owned property is located in the Southern North Sea Gas Basin and contains multiple prospects. Work undertaken during the year included the acquisition of a 3-D seismic survey and data processing at a net cost $2.4 million. Seismic interpretation continues and is expected to be completed by the third quarter of 2007. On March 27, 2007, Ithaca announced a farmout under which a well will be drilled before the end of the first quarter to test the leman Sandstone on the block. Ithaca will recover approximately $1 million expended on the seismic, will pay 25.33% of the well and will retain a 34% interest in the license. It is anticipated that a well will be drilled on the property in the last half of 2007 or the first quarter of 2008.

Athena

Ithaca owned a 90% interest in Licence P 1293 covering Block 14/18b located in the Outer Moray Firth area of the UK Continental Shelf which contained a previous oil discovery called Athena. The appraisal and development of this property was the major focus for the Corporation during 2006. In the 4th quarter the Corporation successfully drilled its first well on the project. The well was cased and suspended for future production. This well was financed through a partial farmout to another party, the raising of $6 million of non-recourse mezzanine funds and with corporate funds. The well was drilled at a net cost to the Corporation of $16.2 million while the Corporation retained a 70% interest in the project. This, together with continued development planning activities and seismic acquisition on the other properties, resulted in a significant cash outflow for investing activities during the quarter.

LIQUIDITY AND CAPITAL RESOURCES

Total cash inflow from financing activities in the year ended December 31, 2006 was $98.0 million, primarily as a result of the initial public offering and an additional equity offering in December 2006. In addition, the Corporation obtained a $6.0 million contribution from Gemini Oil & Gas Fund II, L.P. This unsecured funding will be repaid from payments on future production from the Corporation's Athena property. These funds have been used for the development of the Athena project. Ithaca has the option to buy out the payment obligation by making a lump sum payment to Gemini at certain milestones.

During the year ended December 31, 2006 there was a cash outflow from operating activities of $21.2 million compared to a cash outflow from operating activities of $0.8 for the corresponding period in 2005. This significant increase is due to the payment during the first half of 2007 of an $18.0 million deposit to secure the services of a drilling rig. This amount will be capitalized as part of oil and gas properties when the drilling work is completed. The Corporation expects to have a cash outflow from operating activities for at least the next two years.

The Corporation's prospects are dependent upon the investment of significant capital sums into its development and exploration projects. With the capital raised pursuant to the Offerings and the UK Placings, management believes that the Corporation will be able to exploit opportunities in its existing portfolio, and also to pursue new ventures that are consistent with its business plan. The Corporation expects to continue to develop the existing licences held and to acquire new licences through participation in future licensing rounds and farm-ins from third parties.

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 indefinitely due to processing constraints, lack of pipeline capacity or lack of markets. The price the Corporation will receive for its oil and natural gas production may fluctuate continuously and, for the most part, is beyond the Corporation's control.

The Corporation is exposed to financial risks including fluctuation in interest rates and various foreign exchange rates. The Corporation is also subject to the risks associated with owning oil and natural gas properties, including environmental risks associated with air, land and water. In all areas of our business, we compete against entities that may have greater technical and financial resources. The Corporation's growth will be dependent upon external sources of financing which may not be available on acceptable terms. There are numerous uncertainties in estimating the Corporation's reserve base due to the complexities in estimating the magnitude and timing of future production, revenue, expenses and capital.

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Corporation is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure. The Corporation's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of December 31, 2006, that the Corporation's disclosure controls and procedures are effective to provide reasonable assurance that material information related to the Corporation is made known to them by others within those entities. It should be noted that while the Corporation's Chief Executive Officer and Chief Financial Officer believe that our disclosure controls and procedures provide a reasonable level of assurance and that they are effective, they do not expect that the disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

The Chief Executive Officer and Chief Financial Officer of the Corporation are responsible for designing internal controls over financial reporting or causing them to be designed under their supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. We have assessed the design of our internal controls over financial reporting as the Corporation has grown throughout the year and during this process we have identified certain weaknesses in internal controls over financial reporting during the year which are as follows:

- Due to the limited number of staff at the Corporation, it is not possible to achieve complete segregation of duties; and

- Due to the size of the Corporation and the limited number of staff, Ithaca does not have the technical accounting expertise and knowledge to address all complex and non-routine accounting transactions that may arise.

These weaknesses in the Corporation's internal controls over financial reporting could result in a risk that a material misstatement would not be prevented or detected. Management and the Board of Directors are working to mitigate the risk of material misstatement in financial reporting by careful review of financial information. In addition, when complex accounting and technical issues arise, during the preparation of the quarterly financial statements, external consulting expertise is engaged. Management and the Board of Directors are committed to developing the systems of internal control over financial reporting to remove the weaknesses noted above and have hired an experienced chartered accountant with oil and gas experience and have engaged external consultants to assist the Corporation in process design and implementation of internal controls and financial reporting systems.

CHANGES IN ACCOUNTING POLICIES, INCLUDING INITIAL ADOPTIONS

Comprehensive Income

In January 2005, the CICA issued Section 1530, "Comprehensive Income". This section introduces a new financial statement ("Consolidated Statement of Other Comprehensive Income") that will provide for certain gains and losses, including foreign currency translation adjustment and other amounts arising from transactions that do not result from distributions to or investment by owners. Effective January 1, 2007, the Company has adopted this section.

Derivative Financial Instruments and Hedges

As of January 1, 2007, the Corporation is required to adopt CICA Section 3855, "Financial Instruments - Recognition and Measurements," and Section 3865, "Hedges." These sections provide for all financial instruments, including derivatives, to be included in the Company's consolidated balance sheet and measured, in most cases, at fair value.

As of January 1, 2008, the Corporation will be required to adopt two new CICA standards, Section 3862 "Financial Instruments -Disclosures" and Section 3863 "Financial Instruments Presentation" which will replace Section 3861 "Financial Instruments-Disclosure and Presentation". The new disclosure standard increases the emphasis on the risks associated with both recognized and unrecognized financial instruments and how those risks are managed.

The Corporation is in the process of evaluating the impact of these new standards on its Consolidated Financial Statements.

Accounting Changes

As of January 1, 2007, the Corporation is required to adopt revised CICA Section 1506, "Accounting Changes", which provides expanded disclosures for changes in accounting polices, accounting estimates and corrections of errors. Under the new standard, accounting changes should be applied retrospectively unless otherwise permitted or where impracticable to determine. In addition, voluntary changes in accounting policy are made only when required by a primary source GAAP or the change results in more relevant and reliable information. The Company does not expect application of this revised standard to have a material impact on its Consolidated Financial Statements.

Capital Disclosures

In December 2006, CICA issued Sections 1535 "Capital Disclosures", which will require companies to disclose their objectives, policies and processes for managing capital. In addition, disclosures are to include whether companies have complied with externally imposed capital requirements. The adoption of new capital disclosure requirements is required on January 1, 2008 and the Company is currently assessing the impact on its Consolidated Financial Statements.

OUTSTANDING SHARE INFORMATION

As of April 30, 2007, there are 82,904,475 common shares of the Corporation outstanding and 86,906,975 common shares fully diluted. There are 4,002,500 options to purchase common shares outstanding.



Consolidated Balance Sheets
At December 31, 2006 and December 31, 2005

2006 2005
US$ US$
----------------------------------------------------------------------
----------------------------------------------------------------------
ASSETS


Current assets
Cash and cash equivalents $ 51,371,607 $ 3,812,327
Accounts receivable 2,942,882 5,635,308
Deposits, prepaid expenses and other 20,274,476 511,370
----------------------------------------------------------------------
74,588,965 9,959,005

Property, plant and equipment (note 3) 40,345,189 8,084,201
----------------------------------------------------------------------

$ 114,934,154 $ 18,043,206
----------------------------------------------------------------------
----------------------------------------------------------------------


LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities
Accounts payable and accrued liabilities $ 7,266,977 $ 1,122,827

Asset retirement obligation (note 4) 1,513,000 -
----------------------------------------------------------------------

8,779,977 1,122,827


Shareholders' Equity
Share capital (note 5) $ 110,782,103 18,009,561
Contributed surplus (note 6) 883,962 116,371
Deficit (5,511,888) (1,205,553)
----------------------------------------------------------------------
106,154,177 16,920,379
----------------------------------------------------------------------
$ 114,934,154 $ 18,043,206
----------------------------------------------------------------------
----------------------------------------------------------------------

Nature of operations (note 1)
Commitments (note 10)
"Approved on behalf of the Board"

Lawrence H. Payne ("signed")
---------------------------
---------------------------
Director


Bradley G. Gunn ("signed")
-------------------------
-------------------------
Director



Consolidated Statements of Loss and Deficit
Years ended December 31, 2006 and December 31, 2005

2006 2005
US$ US$
------------------------------------------------------------------------
------------------------------------------------------------------------

REVENUE $ - $ -

COSTS AND EXPENSES
General and administrative 4,340,926 1,087,684
Depreciation 69,769 6,289
Interest income (1,176,192) (27,410)
Loss (gain) on foreign exchange 1,071,832 (49,259)
------------------------------------------------------------------------

NET LOSS $ 4,306,335 $ 1,017,304

Deficit, beginning of year $ 1,205,553 $ 188,249
------------------------------------------------------------------------

Deficit, end of year $ 5,511,888 $ 1,205,553

------------------------------------------------------------------------
------------------------------------------------------------------------
Net loss per share (basic & diluted) (note 7) $ 0.09 $ 0.06

------------------------------------------------------------------------
------------------------------------------------------------------------

Nature of operations (note 1)



Consolidated Statements of Cash Flows
Years ended December 31, 2006 and December 31, 2005

2006 2005
US$ US$
--------------------------------------------------------------------------
--------------------------------------------------------------------------
CASH PROVIDED BY (USED IN):

OPERATING ACTIVITIES:

Net loss $ (4,306,335) $ (1,017,304)
Items not affecting cash
Depreciation 69,769 6,289
Stock based compensation (note 5) 771,962 112,000
--------------------------------------------------------------------------
(3,464,604) (899,015)
--------------------------------------------------------------------------
Changes in Non-Cash Working Capital (17,686,622) 75,038
--------------------------------------------------------------------------

(21,151,226) (823,977)

FINANCING ACTIVITIES:

Proceeds from issuance of shares 105,131,621 12,807,341
Share issue costs (7,140,234) (698,190)
--------------------------------------------------------------------------

97,991,387 12,109,151

INVESTING ACTIVITIES:

Oil and natural gas properties (35,135,001) (7,617,482)
Proceeds from Gemini (note 9) 6,000,000 -
Office furniture and equipment (145,880) (107,367)
--------------------------------------------------------------------------

(29,280,881) (7,724,849)

INCREASE IN CASH $ 47,559,280 $ 3,560,325

Cash and cash equivalents, beginning of year $ 3,812,327 $ 252,002
--------------------------------------------------------------------------

Cash and cash equivalents, end of year $ 51,371,607 $ 3,812,327
--------------------------------------------------------------------------
--------------------------------------------------------------------------


1. NATURE OF OPERATIONS

Ithaca Energy Inc. (the "Corporation"), incorporated in Alberta, and its wholly-owned subsidiary, Ithaca Energy (UK) Limited, incorporated in Scotland, are companies involved in the exploration and development of oil and gas in the North Sea. The Corporation's shares are listed on the TSX Venture Exchange in Canada and the London Stock Exchange's AIM in the United Kingdom.

Since May 2004, the Corporation has been evaluating the resource potential of certain oil and natural gas exploration properties and is considered to be in its development stage of operations. The recoverability of amounts shown for oil and natural gas properties is dependent upon the determination of economically recoverable reserves.

The Corporation requires additional financing in order to fund its ongoing exploration and development programs. Management intends to raise the required financing through a combination of equity issues, bank financing, asset rationalizations, farm outs or by other means.

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The consolidated financial statements of the Corporation include the accounts of Ithaca Energy Inc. and its wholly-owned subsidiary Ithaca Energy (UK) Limited. All inter-company transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. The amounts recorded for depreciation, asset retirement obligation, future income taxes, and stock based compensation are based upon estimates, as are assumptions used in the ceiling test. Actual results could differ from those estimates.

Cash and Cash Equivalents

For the purpose of cash flow statements, cash and cash equivalents include investments with an original maturity of three months or less.

Financial Instruments

The Corporation's financial instruments consist of cash, accounts receivable and accounts payable and accrued liabilities. It is management's opinion that the Corporation is not exposed to significant interest, currency or credit risk arising from its financial instruments and that their fair values approximate their carrying values.

Foreign Currency Translation

Items included in the financial statements are measured using the currency of the primary economic environment in which the Corporation operates (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 under the temporal method 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 recognized in the income statement.

Property, Plant and Equipment

(a) Oil and Natural Gas Operations:

The Corporation follows the full cost method of accounting for exploration and development expenditures whereby all costs relating to the acquisition, exploration and development of oil and natural gas reserves are capitalized. Such costs include lease acquisitions, geological and geophysical, lease rentals on undeveloped properties, drilling both productive and non-productive wells, production equipment, and overhead charges directly related to acquisition, exploration and development activities. Proceeds received from disposals of properties and equipment are credited against capitalized costs unless the disposal would alter the rate of depletion and depreciation by more than 20 percent, in which case a gain or loss on disposal is recorded. In addition, proceeds received from the sale of future royalties are credited to oil and gas properties.

All costs of acquisition, exploration and development of natural gas reserves, associated tangible plant and equipment costs, and estimated costs of future development of proved developed reserves are depleted and depreciated by the unit of production method based on estimated gross proved reserves before royalties as determined by independent evaluators. Natural gas reserves are converted to equivalent units using their relative energy content of six thousand cubic feet of natural gas to one barrel of oil. The costs of acquiring and evaluating unproved properties are excluded from costs subject to depletion. These properties are assessed periodically to ascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to the costs subject to depletion.

Petroleum and natural gas assets are evaluated annually to determine whether the costs are recoverable and do not exceed the fair value of the properties. The costs are assessed to be recoverable if the sum of the undiscounted cash flows expected from the production of proved reserves plus the lower of cost and market of unproved properties exceed the carrying value of the petroleum and natural gas assets. If the carrying value of the petroleum and natural gas assets is not assessed to be recoverable, an impairment loss is recognized to the extent that the carrying value exceeds the sum of the discounted cash flows expected from the production of proved and probable reserves and the lower of cost and market of unproved properties. The cash flows are estimated using future product prices and costs and are discounted using the risk-free interest rate.

(b) Furniture and Office Equipment:

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.

Asset Retirement Obligation

The Corporation records the present value of legal obligations associated with the retirement of long-lived 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-lived asset. In subsequent periods, the asset estimate obligation is adjusted for the passage of time and any changes in the estimated amount or timing of the settlement of the obligations. The carrying amounts of the long-lived assets are depleted using the unit of production method. Actual costs to retire tangible assets are deducted from the liability as incurred.

Stock based Compensation

The Corporation has a stock based compensation plan as described in note 5. Stock based compensation expense is recorded in the statement of operations and deficit for all options granted in the year, with a corresponding increase recorded as contributed surplus. Compensation expense is based on the estimated fair values at the time of the grant and the expense is recognized over the vesting period of the options. Upon the exercise of the stock options, consideration paid together with the amount previously recognized in contributed surplus is recorded as an increase in share capital. In the event that vested options expire unexercised, previously recognized compensation expense associated with such stock options is not reversed. In the event that options are cancelled, previously recognized compensation expense associated with the unvested portion of such stock options is reversed.

Earnings per Share

Basic earnings per common share are calculated on the net earnings using the weighted average number of shares outstanding during the fiscal period. Diluted earnings per share information is calculated using the treasury stock method which assumes that proceeds obtained upon exercise of options and warrants would be used to purchase common shares at the average market price for the period. No adjustment to diluted earnings per share is made if the result of this calculation is anti-dilutive.

Income Taxes

Income taxes are accounted for using the asset and liability method of tax allocation. Future income taxes are recognized for the future income tax consequences attributable to differences between the carrying values of assets and liabilities and their respective income tax bases. Future income tax assets and liabilities are measured using 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 future income tax assets and liabilities of a change in rates is included in earnings in the period of the enactment date. Future income tax assets are recorded in the consolidated financial statements if realization is considered more likely than not.

3. PROPERTY, PLANT AND EQUIPMENT



-------------------------
2006 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
Oil and natural gas properties $ 40,165,229 $ 7,980,351
------------------------------------------------------------------------
Office furniture and equipment 256,251 110,371
------------------------------------------------------------------------
Less accumulated depreciation and amortization (76,291) (6,521)
------------------------------------------------------------------------
------------------------------------------------------------------------
Total property, plant and equipment $ 40,345,189 $ 8,084,201
------------------------------------------------------------------------


As the Corporation had no production at either December 31, 2005 or 2006, there was no depletion charge for either year. A ceiling test was performed for both years and there was no impairment of oil & gas properties. At December 31, 2006, oil and natural gas properties included $40,165,229 (2005 -$7,980,351) relating to undeveloped properties. During 2006, the Corporation capitalized $579,670 (2005 - $410,000) of overhead directly related to exploration activities.

The forecasted future prices used in the ceiling test were as follows:



----------------------------
Oil Reference Gas Reference
Price ($/bbl) Price ($/mcf)
-----------------------------------------------------------
-----------------------------------------------------------
2007 63.73 7.15
-----------------------------------------------------------
2008 66.78 8.25
-----------------------------------------------------------
2009 60.34 8.43
-----------------------------------------------------------
2010 56.24 8.60
-----------------------------------------------------------
2011 53.04 8.77
-----------------------------------------------------------

Prices are escalated at 2% thereafter.


4. ASSET RETIREMENT OBLIGATION

The Corporation's asset retirement obligation relates to the restoration and abandonment cost of the test well drilled in the Athena field and was calculated using a credit-adjusted risk-free discount rate of 10.0% . The total undiscounted amount of cash flows required to settle the obligation is estimated at approximately $2.0 million. The present value has been calculated based on incurring the expenditures in 2009, when the current licence expires. These obligations will be funded from the Corporation's resources at the time the costs are incurred.

The following table presents the reconciliation of the beginning and ending obligations associated with the retirement of the property:



-----------------
2006 2005
----------------------------------------------------------------
----------------------------------------------------------------
Balance, beginning of year $ - $ -
----------------------------------------------------------------
Obligation assumed on exploration activities 1,513,000 -
----------------------------------------------------------------
Balance, end of year $ 1,513,000 $ -
----------------------------------------------------------------


5. SHARE CAPITAL

The Corporation has authorized share capital of an unlimited number of common shares of no par value. The issued share capital is as follows:



--------------------------------------------------------------------------
Authorized
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Unlimited number of Voting Common Shares without nominal or par value
--------------------------------------------------------------------------
Unlimited number of Preferred Shares issuable in series
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Issued Number Amount
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Balance December 31, 2004 6,991,669 $ 660,012
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Issued pursuant to private placements 1,120,276 551,666
--------------------------------------------------------------------------
Issued pursuant to private placement of special
option units 6,875,000 4,865,702
--------------------------------------------------------------------------
Issued pursuant to private placements 8,211,611 7,381,950
--------------------------------------------------------------------------
Share issue costs - (698,190)
--------------------------------------------------------------------------
Issued pursuant to warrant exercise 3,600,000 303,977
--------------------------------------------------------------------------
Total Issued in 2005 19,806,887 $ 12,405,105
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Shares outstanding December 31, 2005 26,798,556 $ 13,065,117
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Pursuant to special option units - 4,944,444
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Balance December 31, 2005 26,798,556 $ 18,009,561
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Issued pursuant to special option units 5,555,555 -
--------------------------------------------------------------------------
Issued pursuant to warrant exercise 406,054 369,820
--------------------------------------------------------------------------
Issued for cash 50,144,310 99,542,955
--------------------------------------------------------------------------
Share issue costs - (7,140,233)
--------------------------------------------------------------------------
Balance December 31, 2006 82,904,475 110,782,103
--------------------------------------------------------------------------


Ithaca Energy Inc. has closed the following non-brokered and brokered Private Placements and Public Offerings during the past two years:

On July 8, 2005, the Corporation issued 6,875,000 Units. These Units were comprised of one (1) common share, one (1) Penalty Right and 0.8 Special Option Units, at $0.80 per unit. Of the total purchase price for the units, 12.5% was held in trust, to be paid to the Corporation upon closing of the acquisition, by the Corporation, of the 20% interest of Eni in Licence P.749 (the "Barbara Transaction") in the event such acquisition closed on or before October 31, 2005; otherwise, the subscription price for the Units would be deemed to be reduced to $0.70 per unit and funds representing the reduction in the subscription price would be paid to the subscribers, and the exercise price for the 3,055,555 Special Option Units and the 2,500,000 Special Option Units granted in conjunction with the private placement would be deemed to be reduced from $0.90 and $1.10, respectively, to $0.80 and $1.00, respectively. Such acquisition did not close by October 31, 2005, therefore $687,500 was paid to the subscribers.

On September 8, 2005, the Corporation issued 2,547,167 Units at US$0.90 per Unit. Each Unit was comprised of one common share and one penalty right. Broker warrants of 101,887 to purchase one common share at US$0.90 per share until the earlier of March 8, 2007, or six months after the Corporation's common shares are listed on a stock exchange, were issued in conjunction with this placement.

On October 20, 2005, the Corporation issued 5,664,444 common shares at US$0.90 per share.

On October 27, 2005, the Corporation issued 3,600,000 common shares at CAD$0.10 per share as a result of the exercise of warrants by warrant holders.

On June 6, 2006, the Corporation completed an Initial Public Offering in Canada and the UK by issuing 29,644,310 common shares at a price of CAD$2.10 per share.

On December 19, 2006 the Corporation closed a Short Form Offering by issuing an additional 20,500,000 common shares at CAD$2.45.

Share Purchase Warrants

In conjunction with financings in 2004 and 2005, the Corporation issued warrants with terms of eighteen months to three years to acquire common shares at specific exercise prices. Warrants outstanding at each year-end are:



-----------------------------------------------------------------------
Weighted average
Number exercise price
-----------------------------------------------------------------------

-----------------------------------------------------------------------
Outstanding at Dec. 31, 2004 3,600,000 CAD$ 0.10
-----------------------------------------------------------------------

-----------------------------------------------------------------------
Granted 406,054 US$ 0.90
-----------------------------------------------------------------------
Exercised 3,600,000 CAD$ 0.10
-----------------------------------------------------------------------

-----------------------------------------------------------------------
Outstanding at Dec. 31, 2005 406,054 US$ 0.90
-----------------------------------------------------------------------

-----------------------------------------------------------------------
Exercised 406,054 US$ 0.90
-----------------------------------------------------------------------

-----------------------------------------------------------------------
Outstanding at Dec. 31, 2006 - -
-----------------------------------------------------------------------


The share purchase warrants are accounted for using the fair value method. The cost charged against share capital for share purchase warrants granted in 2006 was $nil (2005: $4,371). The fair value of each share purchase warrant was estimated at the date of grant and using the Black-Scholes option pricing model with the following assumptions:



---------------
2005
------------------------------------------------------
------------------------------------------------------
Risk free interest rate 3.03%
------------------------------------------------------
Expected dividend yield 0%
------------------------------------------------------
Expected stock volatility 0.1%
------------------------------------------------------
Expected life of options 18 months
------------------------------------------------------


Stock Options

The Corporation has a stock option plan, approved by shareholders April 12, 2006, for directors, officers, employees and consultants which provides for the granting of options to acquire common shares. At December 31, 2006, there were 8,290,447 common shares authorized for issuance under the plan of which options to acquire 4,002,500 common shares were outstanding. 2,951,250 of the outstanding options have vested.




---------------------------------------------------------------------------
Exercise Outstanding Exercised Outstanding Vested at
Price of at Dec. Granted or or at Dec. Dec. 31, Expiry
Option 31, 2005 (Cancelled) Expired 31, 2006 2006 Date
---------------------------------------------------------------------------
US$0.90 1,300,000 0 - 1,300,000 1,300,000 11-Oct-08
---------------------------------------------------------------------------
US$0.90 100,000 0 - 100,000 100,000 18-Nov-08
---------------------------------------------------------------------------
US$0.90 - 100,000 - 100,000 100,000 18-Feb-09
---------------------------------------------------------------------------
US$0.90 - 400,000 - 400,000 400,000 27-Feb-09
---------------------------------------------------------------------------
CAD$2.32 - 2,102,500 - 2,102,500 1,051,250 18-Aug-09
---------------------------------------------------------------------------


Options granted are accounted for using the fair value method. The compensation cost charged against earnings for stock options granted in 2006 was $771,962 (2005 - $112,000) The fair value of each stock option grant was estimated at the date of grant, using the Black-Scholes option pricing model with the following assumptions:



----------------
2006 2005
----------------------------------------------------------
----------------------------------------------------------
Risk free interest rate 4.09 3.03
----------------------------------------------------------
Expected dividend yield 0% 0%
----------------------------------------------------------
Expected stock volatility 28% 0.1%
----------------------------------------------------------
Expected life of options 3 years 3 years
----------------------------------------------------------

6. CONTRIBUTED SURPLUS

---------------------
2006 2005
----------------------------------------------------------
----------------------------------------------------------
Balance, beginning of year $ 116,371 $ -
----------------------------------------------------------
(Exercise) Issue of Warrants (4,371) 4,371
----------------------------------------------------------
Issue of Stock Options 771,962 112,000
----------------------------------------------------------
Balance, end of year $ 883,962 $ 116,371
----------------------------------------------------------


7. PER SHARE AMOUNTS

The weighted average number of shares outstanding during 2006 was basic 49,012,801 (2005: 12,811,496) and diluted 51,182,706 (2005: 16,411,496). The effect of outstanding warrants and options is anti-dilutive, and therefore diluted per share amounts have not been separately calculated.

8. FUTURE INCOME TAXES

The provision for future income taxes differs from the amount computed by applying the combined statutory Canadian Federal and Provincial tax rates to earnings before taxes. The reasons for these differences are as follows:



--------------------------------------------------------------------------
2006 2005
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Loss before taxes $ 4,306,335 $ 1,017,304
--------------------------------------------------------------------------
Enacted tax rate 32.1% 33.6%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Computed income taxes at the enacted rate 1,382,334 341,814
--------------------------------------------------------------------------
Non-deductible, stock based compensation (277,272) (37,632)
--------------------------------------------------------------------------
Share issue costs 272,325 22,582
--------------------------------------------------------------------------
Foreign loss subject to tax at other than
statutory rate (71,692) (24,823)
--------------------------------------------------------------------------
Change in tax rates (19,584) (4,630)
--------------------------------------------------------------------------
Change in valuation allowance (1,286,111) (297,311)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Total $ - $ -
--------------------------------------------------------------------------
--------------------------------------------------------------------------

At December 31, 2006, the Corporation had estimated future tax assets as
follows:

----------------------------------------------------------
2006 2005
----------------------------------------------------------
----------------------------------------------------------
Future Tax Assets
Non-capital losses $ 1,853,547 $ 362,498
----------------------------------------------------------
Share issue costs 2,213,744 209,936
----------------------------------------------------------

----------------------------------------------------------
Valuation Allowance (4,067,291) (572,434)
----------------------------------------------------------
----------------------------------------------------------

----------------------------------------------------------
Total $ - $ -
----------------------------------------------------------
----------------------------------------------------------

The non-capital losses available at December 31, 2006 to reduce future
taxable income expire as follows:

--------------------------------------
2014 $ 87,209
--------------------------------------
2015 $ 288,978
--------------------------------------
2026 $ 1,899,846
--------------------------------------
No expiry date $ 3,413,896
--------------------------------------


9. GEMINI AGREEMENT

On September 18, 2006, the Corporation entered into an agreement (the "Gemini Agreement") with Gemini Oil & Gas Fund II, L.P. ("Gemini") whereby Gemini agreed to provide non-recourse funding of US$6 million for the drilling and testing of the 14/18b-15 well. Under the terms of the agreement, Gemini will not earn an equity interest in the field nor will it be responsible for further costs of development should the well be successful. The funding is repayable only out of production from the Athena accumulation should the field be developed, in which case Gemini will be entitled to receive payments based on Ithaca's 70% share of gross production ranging from 3.86% before recovery of the original US$6 million declining to 2.57% before recovery of the next US$6 million and 1.29% thereafter. The interest may be acquired at the option of Ithaca in exchange for warrants to acquire up to 3,000,000 Common Shares and in exchange for payments ranging from US$7.5 million to US$10.00 million depending on the time of acquisition. The option expires 24 months from "first oil". "First oil" is defined as starting after 60 days of continuous production after facilities are commissioned for production. The warrant is exercisable on or before the earlier of: (i) 6 months after the date of issue; or (ii) 5 years from the date of the Gemini Agreement, being September 18, 2011.

10. COMMITMENTS

The Corporation has the following financial commitments:



--------------------------------
2007 2008 2009
----------------------------------------------------------
----------------------------------------------------------
Office sublease $ 92,192 $ 23,048 $ -
----------------------------------------------------------
Exploration license fees $ 492,387 $ 152,601 $ 152,601
----------------------------------------------------------
Rig hire commitments $ 27,000,000 $ - $ -
----------------------------------------------------------


Forward-looking statements

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

In accordance with AIM Guidelines, Lawrie Payne, MA Marine Geology (Alberta & Columbia) and CEO of Ithaca Energy is the qualified person that has reviewed the technical information contained in this press release.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this news release.

Contact Information