2013 CONSOLIDATED FINANCIAL STATEMENTS

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS Ithaca Energy Inc. Year End Financial Statements 1

2 General Information Directors Jack C. Lee (Chairman) Les Thomas (Chief Executive) (appointed 1 October ) Iain McKendrick (Chief Executive) (resigned 1 October ) John Patrick Summers Frank Wormsbecker Jay Zammit Ron Brenneman Brad Hurtubise Jannik Linbaeck (appointed 30 May ) Company Secretary Pinsent Masons Secretarial Limited 1 Park Row Leeds LS1 5AB Independent Auditors PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors 32 Albyn Place Aberdeen AB10 1YL Bankers BNP Paribas London Office 40 Harewood Avenue London NW1 6AA Solicitors Pinsent Masons 13 Queen's Road Aberdeen AB15 4YL Registered Office 1600, 333 7th Avenue S.W. Calgary Alberta Canada T2P 2Z1 Ithaca Energy Inc. Year End Financial Statements 2

3 Independent Auditors' Report To the Shareholders of Ithaca Energy Inc. We have audited the accompanying consolidated financial statements of Ithaca Energy Inc. and its subsidiaries, which comprise the Statement of Financial Position as at 31 December and 31 December and the consolidated Statement of Income, Statement of Changes in Equity and Statement of Cash Flow for the years then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. Management s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Ithaca Energy Inc. and its subsidiaries as at 31 December and 31 December and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards. Chartered Accountants "PricewaterhouseCoopers LLP" PricewaterhouseCoopers LLP 32 Albyn Place Aberdeen AB10 1YL 28 March 2014 Ithaca Energy Inc. Year End Financial Statements 3

4 Consolidated Statement of Income For the year ended 31 December Note Revenue 5 Cost of sales 6 Gross Profit 413,937 (327,031) 86, ,477 (135,049) 35,428 Exploration and evaluation expenses 12 Impairment of assets 13 Nonrecurring Valiant acquisition costs (10,235) Administration expenses (10,652) (5,193) Total Administrative expenses 7 (20,887) (5,193) Operating (Loss)/Profit (18,737) (52,864) (5,582) (4,261) 25,974 Foreign exchange (Loss)/gain on financial instruments 28 Gain on asset disposal 19 Release of exploration obligation 19 Negative goodwill 14 Profit Before Interest and Tax Finance costs 8 Interest income Profit Before Tax Taxation 26 Profit After Tax Earnings per share (US$ per share) Basic 25 Diluted 25 1,070 (21,708) 1,526 28,472 55,333 59,111 (19,364) , , , ,029 6, ,947 (4,930) ,235 64,164 93, No separate statement of comprehensive income has been prepared as all such gains and losses have been incorporated in the consolidated statement of income above. The results above are entirely derived from continuing operations. The notes on pages 8 to 28 are an integral part of these consolidated financial statements. Ithaca Energy Inc. Year End Financial Statements 4

5 Consolidated Statement of Financial Position as at 31 December Note ASSETS Current assets Cash and cash equivalents CAS01 Restricted cash 9 CAS03 Accounts receivable 10 CAS02 Deposits, prepaid expenses and other CAS04 Inventory 11 CAS06 Derivative financial instruments 29 CAS10 Noncurrent assets Longterm receivable 31 Investment in associate 16 Exploration and evaluation assets 12 Property, plant & equipment 13 CAS08 Goodwill 15 Total assets 63,435 12, ,727 21,150 29,758 5, ,370 31,655 18,337 57,628 1,423, ,532,317 1,978,687 31, ,195 14,754 15,878 8, ,454 21,551 18,337 47, , , ,505 LIABILITIES AND EQUITY Current Liabilities Trade and other payables 18 CLB01 Exploration obligations ,396 12, , , ,635 Noncurrent liabilities Borrowings 17 CLB02 432,243 Decommissioning liabilities 20 CLB04 172,047 52,834 Other long term liabilities 21 CLB03 6,037 3,018 Deferred tax liabilities 26 9,909 62,370 Contingent consideration 22 CLB06 4,000 4,000 Derivative financial instruments 29 CLB07 15, , ,222 Net Assets Shareholders' Equity Share capital 23 SEQ01 Share based payment reserve 24 SEQ02 Retained earnings 23 SEQ03 Total Equity 853, ,716 19, , , , ,318 20, , ,648 The financial statements were approved by the Board of Directors on 28 March 2014 and signed on its behalf by: "John Summers" Director "Jay Zammit" Director The notes on pages 8 to 28 are an integral part of these consolidated financial statements. Ithaca Energy Inc. Year End Financial Statements 5

6 Consolidated Statement of Changes in Equity For the year ended 31 December Share capital Share based payment reserve Retained earnings Total Balance, 1 Jan Profit for the period Total comprehensive income 429,502 17, ,502 17,318 60,591 93, , ,411 93, ,810 Share based payment Options exercised Balance, 31 Dec 1, ,318 3,817 (795) 20, ,990 3,817 1, ,648 Balance, 1 Jan Profit for the period Total comprehensive income Shares issued Share based payment Options exercised Balance, 31 Dec 431,318 20, , , ,318 20, ,676 93,005 3,733 11,393 (4,819) 535,716 19, , , , ,334 93,005 3,733 6, ,646 The notes on pages 8 to 28 are an integral part of these consolidated financial statements. Ithaca Energy Inc. Year End Financial Statements 6

7 Consolidated Statement of Cash Flow For the year ended 31 December CASH PROVIDED BY (USED IN): Operating activities Profit Before Tax 40,155 29,235 Adjustments for: Depletion, depreciation and amortisation Exploration and evaluation write off Impairment 158,279 18,737 52,864 56,172 4,261 Share based payment Loan fee amortisation Revaluation of financial instruments Revaluation of contingent consideration Gain on disposal Gain on exploration release 561 2,580 34,590 (29,998) 866 1,087 (4,142) 1,295 (205) Movement in goodwill (55,333) Accretion Bank interest & charges 4,509 12,138 1,777 Valiant acquisition fees 5,032 Cashflow from operations 244,114 90,346 Changes in inventory, debtors and creditors relating to operating activities Net cash from operating activities (6,971) 237,143 (23,779) 66,567 Investing activities Acquisition of Valiant net of cash acquired (200,636) Cash acquired on acquisition of Valiant 11,611 Valiant acquisition fees (5,032) Acquisition of Cook (33,370) Capital expenditure Investment in associate Loan to associate Proceeds on disposal Settlement of contingent consideration (355,874) (10,104) 1,623 (165,863) (18,337) (21,551) 44,878 (15,700) Changes in debtors and creditors relating to investing activities 97,288 31,031 Net cash used in investing activities Financing activities (494,494) (145,542) Proceeds from issuance of shares (Increase)/decrease in restricted cash Derivatives Repayment of former Valiant loan 6,574 (11,998) (12,876) (115,000) 1,020 16,508 (2,485) Loan draw down 443,903 Bank interest & charges (17,661) Net cash from financing activities Currency translation differences relating to cash & cash equivalents Increase/(decrease) in cash & cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period 292,942 (3,530) 32,061 31,374 63,435 15,043 (239) (64,171) 95,545 31,374 The notes on pages 8 to 28 are an integral part of these consolidated financial statements. Ithaca Energy Inc. Year End Financial Statements 7

8 Notes to the consolidated 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. The consolidated financial statements of Ithaca Energy Inc. for the year ended 31 December were authorised for issue in accordance with a resolution of the directors on 28 March BASIS OF PREPARATION The Corporation prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The consolidated financial statements are presented in US dollars and all values are rounded to the nearest thousand (US$ 000), except when otherwise indicated. 3. SIGNIFICANT ACCOUNTING POLICIES, JUDGEMENTS AND ESTIMATION UNCERTAINTY Basis of measurement The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial assets and financial liabilities (under IFRS) to fair value, including derivative instruments. Basis of consolidation The consolidated financial statements of the Corporation include the accounts of Ithaca Energy Inc. and all whollyowned subsidiaries. Ithaca has seventeen whollyowned subsidiaries, thirteen of which were acquired on 19 April as part of the acquisition of Valiant Petroleum PLC ("Valiant"). The consolidated financial statements include the Valiant group of companies from 19 April only (being the acquisition date). All intercompany 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 deconsolidated from the date that control ceases. 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. Ithaca Energy Inc. Year End Financial Statements 8

9 Interest in joint arrangements and associates Under IFRS 11, joint arrangements are those that convey joint control which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. Associates are investments over which the Corporation has significant influence but not control or joint control, and generally holds between 20% and 50% of the voting rights. Under the equity method, investments are carried at cost plus postacquisition changes in the Corporation's share of net assets, less any impairment in value in individual investments. The consolidated income statement reflects the Corporation's share of the results and operations after tax and interest. The Corporation's interest in joint operations (eg exploration and production arrangements) are accounted for by recognising its assets (including its share of assets held jointly), its liabilities (including its share of liabilities incurred jointly), its revenue from the sale of its share of the output arising from the joint operation, its share of revenue from the sale of output by the joint operation and its expenses (including its share of any expenses incurred jointly). Revenue Oil, gas and condensate revenues associated with the sale of the Corporation s crude oil and natural gas are recognised when title passes to the customer. This generally occurs when the product is physically transferred into a vessel, pipe or other delivery mechanism. Revenues from the production of oil and natural gas properties in which the Corporation has an interest with joint venture partners are recognised on the basis of the Corporation s working interest in those properties (the entitlement method). Differences between the production sold and the Corporation s share of production are recognised within cost of sales at market value. Interest income is recognised on an accruals basis and is separately recorded on the face of the statement of income. Foreign currency translation Items included in the financial statements are measured using the currency of the primary economic environment in which the Corporation and its subsidiaries operate (the functional currency ). The consolidated financial statements are presented in United States Dollars, which is the Corporation s functional and presentation currency. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of income. Share based payments The Corporation has a share based payment plan as described in note 23 (c). The expense is recorded in the consolidated statement of income or capitalised for all options granted in the year, with the gross increase recorded in the share based payment reserve. Compensation costs are based on the estimated fair values at the time of the grant and the expense or capitalised amount is recognised over the vesting period of the options. Upon the exercise of the stock options, consideration paid together with the amount previously recognised in share based compensation reserve is recorded as an increase in share capital. In the event that vested options expire unexercised, previously recognised compensation expense associated with such stock options is not reversed. In the event that unvested options are forfeited or expired, previously recognised compensation expense associated with the unvested portion of such stock options is reversed. Cash and cash equivalents For the purpose of the statement of cash flow, cash and cash equivalents include investments with an original maturity of three months or less. Restricted cash Cash that is held for security for bank guarantees is reported in the statement of financial position and statement of cash flow separately. If the expected duration of the restriction is less than twelve months then it is shown in current assets. Ithaca Energy Inc. Year End Financial Statements 9

10 Financial instruments All financial instruments, other than those designated as effective hedging instruments, are initially recognised at fair value on the statement of financial position. The Corporation s financial instruments consist of cash, restricted cash, accounts receivable, deposits, derivatives, accounts payable, accrued liabilities, contingent consideration and the long term liability acquired as part of the Beatrice field acquisition. The Corporation classifies its financial instruments into one of the following categories: heldfortrading financial assets and financial liabilities; heldtomaturity 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. Heldfortrading 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 heldfortrading and are measured at fair value. Accounts receivable are classified as loans and receivables. Accounts payable, accrued liabilities, certain other longterm liabilities, and longterm debt are classified as other financial liabilities. Although the Corporation does not intend to trade its derivative financial instruments, they are classified as heldfortrading 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 longterm debt have been included in the carrying value of the related financial asset or liability and are amortised to consolidated net earnings over the life of the financial instrument using the effective interest method. Analyses of the fair values of financial instruments and further details as to how they are measured are provided in notes 28 to 30. 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 firstin, firstout method. Oil and gas inventories are stated at fair value less cost to sell. Trade receivables Trade receivables are recognised and carried at the original invoiced amount, less any provision for estimated irrecoverable amounts. Trade payables Trade payables are measured at cost. Property, plant and equipment Oil and gas expenditure exploration and evaluation assets Capitalisation Preacquisition costs on oil and gas assets are recognised in the consolidated statement of income when incurred. Costs incurred after rights to explore have been obtained, such as geological and geophysical surveys, drilling and commercial appraisal costs and other directly attributable costs of exploration and evaluation including technical, administrative and share based payment expenses are capitalised as intangible exploration and evaluation ( E&E ) assets. E&E costs are not amortised prior to the conclusion of evaluation activities. At completion of evaluation activities, if technical feasibility is demonstrated and commercial reserves are discovered then, following development sanction, the carrying value of the E&E asset is reclassified as a development and production ( D&P ) asset, but only after the carrying value is assessed for impairment and where appropriate its carrying value adjusted. If after completion of evaluation activities in an area, it is not possible to determine technical feasibility and commercial viability or if the legal right to explore expires or if the Corporation decides not to continue exploration and evaluation activity, then the costs of such unsuccessful exploration and evaluation are written off to the statement of income in the period the relevant events occur. Ithaca Energy Inc. Year End Financial Statements 10

11 Impairment The Corporation s oil and gas assets are analysed into CGU for impairment review purposes, with E&E asset impairment testing being performed at a grouped CGU level. The current E&E CGU consists of the Corporation s whole E&E portfolio. E&E assets are reviewed for impairment when circumstances arise which indicate that the carrying value of an E&E asset exceeds the recoverable amount. When reviewing E&E assets for impairment, the combined carrying value of the grouped CGU is compared with the grouped CGU's recoverable amount. The recoverable amount of a grouped CGU is determined as the higher of its fair value less costs to sell and value in use. Impairment losses resulting from an impairment review are written off to the statement of income. Oil and gas expenditure development and production assets Capitalisation Costs of bringing a field into production, including the cost of facilities, wells and subsea 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 reassessment 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 straightline basis over three years. Furniture and fixtures are recorded at cost and depreciated over their estimated useful lives on a straightline basis over five years. Borrowing costs All interestbearing loans and other borrowings with banks are initially recognised at fair value net of directly attributable transaction costs. After initial recognition, interestbearing loans and other borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, discount or premium. Loan origination fees are capitalised and amortised over the term of the loan. Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use of sale. All other borrowing costs are expensed as incurred. Decommissioning liabilities The Corporation records the present value of legal obligations associated with the retirement of longterm 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 longterm 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. Ithaca Energy Inc. Year End Financial Statements 11

12 Contingent consideration Contingent consideration is accounted for as a financial liability and measured at fair value at the date of acquisition with any subsequent remeasurements recognised either in profit or loss or in other comprehensive income in accordance with IAS 39. Taxation Current income tax Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those that are enacted or substantively enacted by the reporting date. Deferred income tax Deferred tax is recognised for all deductible temporary differences and the carryforward 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. Deferred tax assets and liabilities are offset only when a legally enforceable right of offset exists and the deferred tax assets and liabilities arose in the same tax jurisdiction. Operating leases Rentals under operating leases are charged to the statement of income on a straight line basis over the period of the lease. Maintenance expenditure Expenditure on major maintenance refits or repairs is capitalised where it enhances the life or performance of an asset above its originally assessed standard of performance; replaces an asset or part of an asset which was separately depreciated and which is then written off, or restores the economic benefits of an asset which has been fully depreciated. All other maintenance expenditure is charged to the statement of income as incurred. Recent accounting pronouncements In May 2011, the IASB issued the following standards: IFRS 10, Consolidated Financial Statements ( IFRS 10 ), IFRS 11, Joint Arrangements ( IFRS 11 ), IFRS 12, Disclosure of Interests in Other Entities ( IFRS 12 ), IAS 27, Separate Financial Statements ( IAS 27 ), IFRS 13, Fair Value Measurement ( IFRS 13 ) and amended IAS 28, Investments in Associates and Joint Ventures ( IAS 28 ). Each of the new standards is effective for annual periods beginning on or after 1 January. 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, longterm liability, share based payment, contingent consideration, decommissioning liabilities, derivatives, and deferred taxes are based on estimates. The depreciation charge, any impairment tests and fair value estimates for the purpose of purchase price allocation (business combinations) 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. SEGMENTAL REPORTING The Company operates a single class of business being oil and gas exploration, development and production and related activities in a single geographical area presently being Europe. Ithaca Energy Inc. Year End Financial Statements 12

13 5. REVENUE Oil sales Gas sales Condensate sales Other income Total REV01 REV02 REV03 REV04 401, ,146 9,019 8, ,204 4, , , COST OF SALES Operating costs EXP03 (149,799) (85,478) Oil purchases (1,063) Movement in oil and gas inventory EXP17 (17,890) 6,601 Depletion, depreciation and amortisation (158,279) (56,172) (327,031) (135,049) 7. ADMINISTRATIVE EXPENSES General & administrative EXP01 (10,091) (4,327) Nonrecurring Valiant acquisition related costs (10,235) Share based payment EXP16 (561) (866) (20,887) (5,193) Employee benefit expense Wages and salaries (8,123) (6,468) Social security costs (9,249) (3,964) Share options (3,734) (3,817) Pension costs (1,307) (790) (22,413) (15,039) Staff costs above are recharged to joint venture partners or capitalised to the extent that they are directly attributable to capital projects. 8. FINANCE COSTS Accretion (4,509) Bank charges (12,143) Loan fee amortisation (2,580) Nonoperated asset finance fees (132) (19,364) (1,777) (2,004) (1,087) (62) (4,930) 9. RESTRICTED CASH Security 12,198 12, The above represents cash backed letters of credit for SVT tariff agreements at 31 December. 10. ACCOUNTS RECEIVABLE Trade debtors 194,442 69,111 Norwegian tax receivable 61,397 Accrued income 58,888 90, , ,195 Ithaca Energy Inc. Year End Financial Statements 13

14 11. INVENTORY Crude oil inventory Materials inventory 29,543 15, ,758 15, EXPLORATION AND EVALUATION ASSETS At 1 January 22,689 Additions 38,188 Write offs/relinquishments (4,261) Disposals (9,226) At 31 December Additions Release of exploration obligations Write offs/relinquishments At 31 December 47,390 60,145 (31,170) (18,737) 57,628 Following completion of geotechnical evaluation activity, certain licences were declared unsuccessful and certain prospects were declared noncommercial. Therefore, the related expenditure of $18.7 million was expensed in the 12 months to 31 December, $13 million of which relates to the write off of Norvarg. The above also includes the release of the exploration obligation provision against expenditure incurred (see note 19). 13. PROPERTY, PLANT AND EQUIPMENT Cost Development & Production Oil and Gas assets Other fixed assets Total At 1 January Additions Disposals 623, ,383 (37,912) 2, , ,516 (37,912) At 31 December Acquisitions 725, ,533 2, , ,533 Additions At 31 December DD&A and Impairment At 1 January DD&A charge for the period At 31 December DD&A charge for the period Impairment charge for the period 332,796 1,743,349 (53,988) (55,770) (109,758) (157,879) (52,864) 738 3,163 (1,497) (402) (1,899) (400) 333,534 1,746,512 (55,485) (56,172) (111,657) (158,279) (52,864) At 31 December (320,501) (2,299) (322,800) NBV at 1 January NBV at 1 January 569, , , ,788 NBV at 31 December 1,422, ,423,712 Ithaca Energy Inc. Year End Financial Statements 14

15 Impairment charges in the year reflect the full write off of the Beatrice and Jacky fields which management determined have reached the end of their economic life. This is primarily due to rising anticipated future operating costs as well as the expected cessation of production from the Beatrice area facilities and expected retransfer of the facilities to Talisman for decommissioning in early BUSINESS COMBINATIONS Valiant Acquisition On 19 April the Corporation completed the acquisition of Valiant Petroleum PLC ("Valiant"). The total acquisition consideration was $293.6 million, being $200.6 million paid in cash and $93 million paid with Ithaca shares. The consolidated financial statements include the results of Valiant from the acquisition date. The Valiant acquisition has established Ithaca as a leading midcap North Sea oil and gas operator. The transaction has significantly enhanced the Company s existing production base and producing asset reserves, establishing a highly cash generative business, with tax allowances sheltering the Company from the payment of UK tax over the medium term, and provided operational entry into Norway. The Valiant acquisition has been accounted for as a business combination in accordance with IFRS 3. The fair values of the identifiable assets and liabilities of Valiant as at the acquisition date were reassessed during the year to reflect additional information which has become available concerning conditions that existed at the date of acquisition in accordance with the provisions of IFRS 3 Business Combinations. The final acquisition fair values of the identifiable assets and liabilities are set out below, including retrospective adjustments to the previously reported fair values. To the extent that the aggregate fair value of the identifiable assets and liabilities exceeds the purchase consideration of the Valiant assets, negative goodwill has been recognised in the consolidated statement of income for the year. Provisional Adjustments to Final Fair value Fair value Fair value PP&E Other noncurrent assets 608,000 7,145 7, ,000 7,145 Deferred tax asset 10,863 (4,965) 5,898 Inventories Trade and other receivables Norwegian tax receivable Cash and cash equivalents 10,432 46,718 69,064 11,611 10,432 46,718 69,064 11,611 Trade and other payables Borrowings Exploration obligations Provisions Total identifiable net assets at fair value (151,298) (115,000) (72,500) (83,430) 341,605 3,170 1,250 6,455 (148,128) (115,000) (72,500) (82,180) 348,060 Negative goodwill arising on acquisition Total consideration (47,964) (6,455) 293,641 (54,419) 293,641 The cash outflow on acquisition is as follows: Net cash acquired Cash paid Net consolidated cash flow 11,611 (200,636) (189,025) 11,611 (200,636) (189,025) From the date of acquisition, Valiant has contributed $176.7 million of revenue and approximately $49 million to the net profit before tax. If the combination had taken place at the beginning of the year, the contribution to profit before tax for the period would have been approximately $84 million and the contribution to revenue would have been $288.2 million. Note profit before tax excludes negative goodwill. Acquisition related costs of $10.2 million have been charged to administrative expenses in the consolidated statement of income for the year ended 31 December. Cook Acquisition On 5 February the Company completed the acquisition of whollyowned UK subsidiary of Noble Energy Capital Limited, which owns a % nonoperated interest in the Cook field (increasing the Company's field interest in Cook to %). The total acquisition consideration was $37.7 million. Ithaca Energy Inc. Year End Financial Statements 15

16 The fair values of the identifiable assets and liabilities of Cook as at the acquisition date were: Fair value Oil and gas properties 70,533 Inventories 14,014 Trade receivables 142 Trade and other payables (734) Deferred tax liabilities (41,153) Provisions (4,158) Total identifiable net assets at fair value Negative goodwill arising on acquisition 38,644 (914) Total consideration 37,730 The cash outflow on acquisition is as follows: Cash paid (37,730) Net consolidated cash flow (37,730) From the date of acquisition, the Cook acquisition has contributed approximately $39 million of revenue and approximately $6 million to the net profit before tax. If the combination had taken place at the beginning of the year, the contribution to profit before tax for the period would have been approximately $7 million and the contribution to revenue would have been $41 million. Note profit before tax excludes negative goodwill. 15. GOODWILL Cost At 1 January, 31 December & 31 December 985 $1.0 million represents goodwill recognised on the acquisition of gas assets from GDF in December As at 31 December, the recoverable amount of assets acquired from GDF was sufficiently high to support the carrying value of this goodwill. 16. INVESTMENT IN ASSOCIATES Investment in FPF1 and FPU Services 18,337 18,337 Investment in associates comprises shares, acquired by Ithaca Energy (Holdings) Limited, in FPF1 Limited and FPU Services Limited as part of the completion of the Greater Stella Area transactions in. There has been no change in value during the period with the above investment reflecting the Company's share of the associates' results. 17. BORROWINGS On 29 June, the Corporation executed a Reserves Based Lending Facility agreement (the "RBL Facility") for up to $430 million, being provided by BNPP as Lead Arranger. The loan term was up to five years and attracted interest at LIBOR plus 34.5%. The Corporation also executed a $350 million bridge loan (the "Bridge Facility") in April 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 LIBOR plus %. In October, the Corporation increased its existing RBL Facility to $610 million with enhanced terms including reduced margin costs (LIBOR plus 2.75%3%) and greater flexibility over future unallocated capital with a loan term until June This enabled retirement of the aforementioned $350 million Bridge Facility. The Corporation also established a new five year $100 million corporate facility in October with a term of up to 5 years which attracts interest at LIBOR plus 4.15%. Ithaca Energy Inc. Year End Financial Statements 16

17 On 1 July, the Corporation signed a NOK 450 million (approximately $75 million) Norwegian Exploration Financing Facility (the "Norwegian Facility") with a loan term of 1 year. 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 facilities. 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. Security provided against the loan Security provided against the facilities is in the form of a floating charge over all assets of the Ithaca group. As at 31 December, $410 million was drawn down under the RBL Facility and approximately $34 million was drawn under the Norwegian Facility. $12 million of loan fees have been capitalised. The Corporation is in compliance with its financial and operating covenants. 18. TRADE AND OTHER PAYABLES Trade payables Accruals and deferred income 19. EXPLORATION OBLIGATIONS Exploration obligations 173, ,344 93, , , ,635 12,859 The above reflects the fair value of E&E commitments assumed as part of the Valiant transaction. During the year to 31 December, $59.7 million was released reflecting expenditure incurred in the period ($31.2 million) as well as the release of the Handcross and Isabella obligations post farmouts ($28.5 million). An additional gain on disposal of $1.5 million was recorded in the consolidated statement of income. 20. DECOMMISSIONING LIABILITIES Balance, beginning of period Additions Accretion 52, ,229 4,509 39,382 9,613 1,777 Revision to estimates Balance, end of period 9, ,047 2,062 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 3.0 percent (31 December : 3.8 percent) and an inflation rate of 2.0 percent (31 December : 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 14 years. Additions in the period primarily relate to the acquisition of Valiant ($82 million) and the development of Stella. Revisions are the result of changes in cost estimates as well as timing and discount rate changes. 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. Ithaca Energy Inc. Year End Financial Statements 17

18 21. OTHER LONGTERM LIABILITIES Balance, beginning of period 3,018 2,785 Revision in the period 3, Balance, end of period 6,037 3,018 The above balance relates to volumes of oil at the Nigg terminal which must be settled on retransfer to Talisman, expected to take place in early CONTINGENT CONSIDERATION Balance, beginning of period Revision to estimates Release 4,000 24,580 1,295 (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. 23. SHARE CAPITAL Number of Amount Authorised share capital ordinary shares At 1 January and 31 December Unlimited (a) Issued The issued share capital is as follows: Issued Number of Amount common shares Balance 1 January Issued for cash options exercised Transfer from Share based payment reserve on options exercised Balance 31 December Share issue 259,164, , ,920,003 56,952, ,502 1, ,318 93,005 Issued for cash options exercised Transfer from Share based payment reserve on options exercised 6,761,296 6,574 4,819 Balance 31 December 323,633, ,716 The share issue in the period reflects shares issued as part consideration for the Valiant acquisition in April. Capital Management The Corporation s objectives when managing capital are: to safeguard the Corporation s ability to continue as a going concern; to maintain balance sheet strength and optimal capital structure, while ensuring the Corporation s strategic objectives are met; and to provide an appropriate return to shareholders relative to the risk of the Corporation s underlying assets. Capital is defined as shareholders equity and net debt. Shareholders equity includes share capital, share based payment reserve, warrants issued, retained earnings or deficit and other comprehensive income. Share capital Share based payment reserve Retained earnings Shareholders' Equity SEQ01 SEQ02 SEQ03 535,716 19, , , ,318 20, , ,648 Ithaca Energy Inc. Year End Financial Statements 18

19 The Corporation maintains and adjusts its capital structure based on changes in economic conditions and the Corporation s planned requirements. The Board of Directors reviews the Corporation s capital structure and monitors requirements. The Corporation may adjust its capital structure by issuing new equity and/or debt, selling and/or acquiring assets, and controlling capital expenditure programs. The Corporation monitors its capital structure using the debttoequity ratio and other benchmark measures at the consolidated group level. Total borrowings Less: cash and cash equivalents Net debt Equity 432,243 (75,633) 356, , ,648 Debt as a % of equity 42% N/A (b) Stock options In the quarter ended 31 December, the Corporation's Board of Directors granted 1,730,232 options at an exercise price of $2.46 (C$2.53). In the quarter ended 31 March, 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 31 December, 14,593,567 stock options to purchase common shares were outstanding, having an exercise price range of $0.20 to $2.46 (C$0.25 to C$2.53) per share and a vesting period of up to 4 years in the future. Changes to the Corporation s stock options are summarised as follows: 31 December 31 December Wt. Avg Exercise Price Wt. Avg Exercise No. of Options * No. of Options Price * Balance, beginning of period Granted 20,347,964 1,820,232 $1.63 $ ,506,839 6,045,000 $1.66 $2.05 Forfeited / expired Exercised (813,333) (6,761,296) $2.18 $0.95 (2,448,333) (755,542) $3.42 $1.26 Options 14,593,567 $ ,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 31 December Range of Exercise Price $2.22$2.46 (C$2.25C$2.53) $1.49$2.03 (C$1.54C$1.99) Options Outstanding Wt. Avg. Wt. Avg. Wt. Avg. Wt. Avg. Life Exercise Life Exercise Range of No. of Options (Years) Price * Exercise Price No. of Options (Years) Price * 6,670,232 7,451,667 Options Exercisable $2.22$2.46 (C$ $2.29 C$2.53) 4,673, $2.22 $1.49$2.03 (C$ $1.90 C$1.99) 3,844, $1.77 $0.20 (C$0.25) 471, $0.17 $0.20 (C$0.25) 471, $ ,593, $2.03 8,989, $1.95 Ithaca Energy Inc. Year End Financial Statements 19

20 The following is a summary of stock options as at 31 December Range of Exercise Price $2.22$2.70 (C$2.25C$2.69) $1.49$2.03 (C$1.54C$1.99) $0.20$0.81 (C$0.25C$0.87) Options Outstanding Options Exercisable Wt. Avg. Wt. Avg. Wt. Avg. Wt. Avg. Life Exercise Life Exercise Range of No. of Options (Years) Price * Exercise Price No. of Options (Years) Price * 5,350,000 10,331,667 4,666,297 20,347,964 $2.22$2.70 (C$ $2.22 C$2.69) 3,280, $2.22 $1.49$2.03 (C$ $1.81 C$1.99) 3,113, $1.53 $0.20$0.81 (C$ $0.56 C$0.87) 4,666, $ $ ,059, $1.43 (c) Share based payment Options granted are accounted for using the fair value method. The compensation cost during the year ended 31 December for total stock options granted was $3.7 million (: $3.8 million). $0.6 million was charged through the statement of income for share based payment for the year ended 31 December (: $0.9 million), being the Corporation s share, after cut back to joint venture partners, of share based payment chargeable through the statement of income. The remainder of the Corporation s share of share based payment has been capitalised. The fair value of each stock option granted was estimated at the date of grant, using the BlackScholes option pricing model with the following assumptions: Risk free interest rate Expected stock volatility Expected life of options Weighted Average Fair Value 1.37% 0.40% 51% 74% 2 years 3 years $0.82 $ SHARE BASED PAYMENT RESERVE US$ 000 US$ 000 Balance, beginning of period Share based payment cost Transfer to share capital on exercise of options 20,340 3,733 (4,819) 17,318 3,817 (795) Balance, end of period 19,254 20, EARNINGS PER SHARE The calculation of basic earnings per share is based on the profit after tax and the weighted average number of common shares in issue during the period. The calculation of diluted earnings per share is based on the profit after tax and the weighted average number of potential common shares in issue during the period. Wtd av. number of common shares (basic) Wtd av. number of common shares (diluted) 301,525, ,887, ,391, ,188,368 Ithaca Energy Inc. Year End Financial Statements 20