IAE.L Regulatory News (IAE)

H1 2013

Fin. Results

Valiant from

19-Apr-13

Pro-Forma

Valiant from

01-Jan-13

Production

boepd

9,138

14,300

Revenue

M$

188.1

299.6

Reduction in oil inventory

M$

(22.7)

(27.0)

Operating Costs

M$

(66.3)

(83.2)

G & A

M$

(5.4)

(15.9)

Forex

M$

(2.0)

(0.2)

Realised Derivative Gains

M$

14.1

14.1

Cashflow from Ongoing Operations

M$

105.8

187.4

Non-Recurring Valiant Costs*

- Restructuring Costs

M$

(5.2)

(5.2)

Cashflow from Operations

M$

100.5

182.2

Iain McKendrick, CEO

imckendrick@ithacaenergy.com

+44(0) 1224 650 261

Graham Forbes, CFO

gforbes@ithacaenergy.com

+44(0) 1224 652 151

FTI Consulting:

Billy Clegg

billy.clegg@fticonsulting.com

+44 (0) 207 269 7157

Edward Westropp

edward.westropp@fticonsulting.com

+44 (0) 207 269 7230

Georgia Mann

georgia.mann@fticonsulting.com

+44 (0) 207 269 7212

Cenkos Securities plc:

Jon Fitzpatrick

jfitzpatrick@cenkos.com

+44 (0) 207 397 8900

Neil McDonald

nmcdonald@cenkos.com

+44 (0) 131 220 6939

RBC Capital Markets:

Tim Chapman

tim.chapman@rbccm.com

+44 (0) 207 653 4641

Matthew Coakes

matthew.coakes@rbccm.com

+44 (0) 207 653 4871

HIGHLIGHTS SECOND QUARTER 2013

· The acquisition of Valiant Petroleum plc ("Valiant") was completed on April 19, 2013, and the financial results reflect the takeover of the acquired assets from that time

Record cashflow from operations

· Q2 2013 cashflow from operations increased approximately 300% to $65.0 million (Q2 2012: $16.3 million) resulting in half yearly cashflow from operations of $100.5 million (H1 2012: $44.7 million) - H1 2013 cashflow per share $0.36 (H1 2012: $0.17)

· Q2 2013 profit before tax of $69.1 million (Q2 2012: $21.7 million) and net earnings of $52.2 million (Q2 2012: $30.2 million) resulting in H1 2013 profit before tax of $71.4 million (H1 2012: $35.5 million) and H1 2013 net earnings of $55.7 million (H1 2012: $43.2 million)

· Q2 2013 average realised oil price of $111 / bbl (Q2 2012: $116 / bbl), including a realised hedging gain of $8 / bbl

· Net drawn debt of $346 million at June 30, 2013 (zero net drawn debt at December 31, 2012)

· UK tax allowances pool of $923 million at quarter end. Norwegian tax receivable of $70 million

· Approximately 4.3 million barrels of future 2013-14 oil production hedged at a weighted average price of approximately $103 / bbl (approximately 30% puts / 70% swaps)

Solid H1 2013 production performance

· Taking into account production from the Valiant assets on a pro-forma basis from the start of 2013, total average net export production in H1 2013 was approximately 14,300 barrels of oil equivalent per day ("boepd"), approximately 95% oil

· Based on pro-forma production in H1 2013 and a balanced view of the opportunities and challenges for H2 2013, the Company anticipates that full year 2013 production will be at the lower end of the pro-forma annual guidance range of 14,000 to 16,000 boepd

· Total average net export production in Q2 2013, taking into account the Valiant acquisition from the transaction completion date of April 19, 2013, was 12,100 boepd, approximately 95% oil (Q2 2012: 3,964 boepd), resulting in H1 2013 production of 9,138 boepd, approximately 93% oil (H1 2012: 4,132 boepd)

Strong progress on Stella - development drilling and subsea infrastructure installation programmes commenced

· Drilling on the Stella field commenced in June 2013 - the first well is currently drilling in the horizontal reservoir section

· Excellent progress is being made on the subsea infrastructure installation work programme - the 60km 10-inch gas export pipeline and main subsea structures have been installed and infield flowline trenching has been completed

· Steady progress has being made on execution of the "FPF-1" floating production facility marine system works following the transfer of the vessel to the dry dock facility at the modifications yard in Gdansk, Poland, in April 2013. The hull tank refurbishment operations are nearing completion and installation of the additional buoyancy has commenced

Norvarg drilling completed

· Drilling operations on the Norvarg appraisal well were successfully completed in August 2013. Work is now being undertaken to evaluate the estimated reserves on the structure and potential future development options

Valiant acquisition integration milestones completed

· All Valiant's UK assets have been integrated into Ithaca's existing organisation and Valiant's UK office has been closed - this is expected to yield approximately $20 million per annum of overhead savings

· All future UK exploration and appraisal well commitments transferred as a result of Valiant acquisition have been farmed out with material expenditure carries - removing approximately $75 million of net UK exploration expenditure, while creating upside exposure to future wells at an anticipated net cost of under $10 million

· Re-focused strategy established for the Norwegian business, targeting lower risk geology / geography, with new leadership

SUMMARY STATEMENT OF INCOME

(1) Average realised price before hedging

(2) Q2 2013 weighted average number of shares of 305.9 million and H1 2013 weighted average number of shares of 283.1 million

SUMMARY BALANCE SHEET

CORPORATE STRATEGY

Ithaca Energy Inc. ("Ithaca" or the "Company") is a North Sea oil and gas operator focused on the delivery of lower risk growth through the appraisal and development of UK undeveloped discoveries, the exploitation of its existing UK producing asset portfolio and a Norwegian exploration and appraisal business centred on the generation of discoveries capable of monetisation prior to development.

The Company has a solid and diversified UK producing asset base generating significant free cashflow from mainly oil production.

Ithaca's goal is to generate sustainable long term shareholder value by building a highly profitable 25kboe/d North Sea oil and gas company.

Execution of the Company's strategy is focused on the following core activities:

• Maximising cashflow and production from the existing asset base.

• Delivery of lower risk development led growth through the appraisal of undeveloped discoveries.

• Delivering first hydrocarbons from the Ithaca operated Greater Stella Area development.

• Monetising proven Norwegian asset reserves derived from exploration and appraisal drilling prior to the development phase.

• Continuing to grow and diversify the cashflow base by securing new producing, development and appraisal assets through targeted acquisitions and licence round participation.

• Maintaining financial strength and a clean balance sheet, supported by lower cost debt leverage.

PRODUCTION & OPERATIONS UPDATE

Solid H1-2013 production performance

Main on-going operational work programmes focused on production enhancement activities

Taking into account production from the Valiant assets on a pro-forma basis from the start of 2013, total average net export production in H1 2013 was approximately 14,300 boepd, approximately 95% oil. This is in line with the Company's pro-forma annual guidance range of 14,000 to 16,000 boepd.

Total average net export production in Q2 2013, taking into account the Valiant acquisition from the transaction completion date of April 19, 2013, was 12,100 boepd, approximately 95% oil (Q2 2012: 3,964 boepd), resulting in H1 2013 production of 9,138 boepd, approximately 93% oil (H1 2012: 4,132 boepd).

Production during the quarter was derived from the operated Athena, Causeway Area (Causeway and Fionn), Beatrice, Jacky and Anglia fields and the non-operated Dons (Don Southwest and West Don), Cook, Broom and Topaz fields.

The material increase in production delivered in Q2 2013 compared to the same quarter in 2012 was primarily attributable to the contribution of the Valiant assets, in addition to the positive impact of the Athena field start-up (first oil May 2012) and the acquisition of an additional 12.885% interest in the Cook field from Noble Energy Capital Limited, the "Cook Acquisition" (transaction completed February 2013).

OPERATIONAL ACTIVITIES

The fields produced strongly during the quarter, although, as anticipated, production was impacted by planned maintenance shutdowns on a number of assets, including the Beatrice Area infrastructure and Anglia, together with the non-operated Topaz field. Scheduled shutdowns were also incurred on the Shell-operated Anasuria Floating Production, Storage and Offloading vessel ("FPSO"), which serves as the host facility for the Cook field, to enable the re-start of production from another field that uses the vessel.

Athena

During the quarter the Ithaca operated Athena field completed its first full year of operations.

Gross daily production was reduced towards the end of the quarter as one of the four producing wells, the "P2" well, was temporarily shut-in awaiting a repair to the electrical cable serving that particular well. The necessary repair was completed in early July 2013 and the well was brought back online.

During the quarter the Athena field commenced the production of water with oil. This was significantly later than originally anticipated prior to start-up of production from the field. The future evolution of the water production profile will now provide important information for forecasting the ultimate field production profile and the scope for future potential upside investment opportunities. The Athena field accounts for less than 15% of the Company's 2013 production following completion of the Valiant acquisition.

Production from one well on the Athena Field, the "P4" well which contributes under 400 boepd (net) was shut-in on 12 August 2013. Diagnostic testing, including investigation of the ESP installed in the well, is underway.

Causeway Area

Drilling activities on the Causeway water injection well and the Fionn production well were completed in Q1 2013. Since taking control of the assets in Q2 2013, the Company has completed the subsea tie-in works required to put the Fionn well into production and is working closely with Taqa, the operator of the Causeway Area host infrastructure, to facilitate start-up of the installed electrical submersible pumps ("ESPs") and (Causeway) water injection as soon as practicable. It is anticipated that the facilities required to start-up the ESPs on the Causeway field will be operational in the fourth quarter of the year.

Flow tests that have been performed on the Fionn well since completion of the subsea tie-in works have confirmed that the field has the potential to flow at considerably better rates if the well is sidetracked to a more optimal location (the well is a re-completed appraisal well).

The Company has exercised a rig option originally held by Valiant to complete the sidetrack of the Fionn well. It is anticipated that drilling operations will commence in the fourth quarter of 2013. The well will be sidetracked to a location updip of the existing well to optimise access to the prime reservoir formation and to target potential upside reserves in a secondary reservoir. Prior to the commencement of drilling operations, the well will be produced on free flow (awaiting the start-up of the ESPs).

Beatrice Area

During the quarter a planned maintenance shutdown was completed on the Beatrice Area infrastructure, which comprises the Beatrice and Jacky offshore platforms and the Nigg oil terminal. The shutdown was focused on both the completion of asset integrity workscopes and the implementation of measures designed to improve the operating efficiency of the facilities.

Dons

A number of production enhancement activities have been completed on the EnQuest operated Dons fields since the end of Q1 2013. An additional production well on the Don Southwest field was drilled and brought online in late Q2 2013. Drilling of a water injection well in the same area of the field, to support production and reserves recovery from that area of the field, is nearing completion. A chemical treatment campaign on a number of the wells on the West Don field was successfully completed in July 2013, using the facilities on the Northern Producer, in order to increase production.

Cook

During the quarter, the Cook field performed strongly. In the last few days the field has had to be shut-in to allow inspection of the infield flowline connecting the field to the Anasuria FPSO. The Operator is planning for the work to be completed in September 2013 to allow restart of production.

PRODUCTION OUTLOOK

Based on pro-forma production in H1 2013 and a balanced view of the opportunities and challenges for H2 2013, the Company anticipates that full year production will be at the lower end of the pro-forma annual guidance range of 14,000 to 16,000 boepd.

Production is expected to benefit from recent operational activities and planned work programmes, notably on the Dons and the Causeway fields. The key risks relate to the timely completion of the works on the Causeway and Cook fields and the results of the on-going evaluation on the Athena P4 well. Substantial delay to completion of the works on these fields, including any rig or vessel work required as an outcome of the Athena P4 diagnostic testing, has the potential to reduce full year production below the guidance range.

GREATER STELLA AREA DEVELOPMENT UPDATE

Development drilling and subsea infrastructure installation programmes underway

Strong progress has continued to be made with development of the Greater Stella Area ("GSA"), with commencement of both the Stella development drilling campaign and the initial subsea infrastructure installation programme marking two major project execution milestones.

Drilling Programme

The high-spec ENSCO 100 heavy duty jack-up drilling rig that is being used for the GSA development drilling campaign commenced operations on the Stella field in June 2013. Management of the drilling and completion operations is being performed by Advanced Drilling Technology International ("ADTI") under "turnkey" contract arrangements.

The initial campaign involves the drilling and completion of four production wells on the Stella field prior to start-up. Three horizontal wells are to be drilled into the oil rim of the field, along with one highly deviated gas-condensate well on the crest of the structure. Each well is anticipated to take approximately 80-90 days to drill, complete and clean-up test. Drilling operations on the first well are currently on-going in the horizontal reservoir section.

Subsea Infrastructure Works

Execution of the main subsea infrastructure manufacturing and installation programme, which is being executed by Technip UK Limited under the terms of an integrated Engineering, Procurement, Installation and Construction contract, continued to move forward as planned in Q2 2013.

The initial offshore installation works commenced in June 2013, with trenching operations being completed in preparation for installation of the infield flowlines. The infield flowlines, which will connect the drill centres to the FPF-1, are scheduled to be installed in Q3 2013.

Over a two week period in July 2013, the Apache II pipelay vessel completed the installation of the 60km 10-inch gas export pipeline that will connect the FPF-1 with the BP operated Central Area Transmission System, through which the gas will be transported to shore for processing at the Teeside Gas and Liquids Processing ("TGLP") terminal. The existing facilities at the TGLP terminal will be used to separate the natural gas, which will be sold to the UK spot market on a daily basis, and the associated propane, butane and condensate from within the gas, with such natural gas liquids being sold by TGLP at prevailing market prices.

Installation of the main subsea structures that will be used for the production and export of hydrocarbons to and from the FPF-1 was also completed in July, using the Skandi Arctic construction and diving support vessel.

FPF-1 Modification Works

Work on the FPF-1 modifications and upgrade programme, which is being managed by Petrofac under the terms of a lump sum incentivised contract, has continued to be focused on execution of the marine system works during the quarter.

The FPF-1 was transferred on to the dry dock barge at the Remontowa shipyard in Gdansk, Poland, in April 2013. The key elements of the dry dock works being completed on the vessel are inspection, repair and coating of the hull tanks and the installation of additional buoyancy.

The hull tank refurbishment operations are nearing completion. Construction and installation of the steelwork blocks that will form the additional sponsons that are being added to the pontoons of the FPF-1 for enhanced buoyancy is advancing and fabrication of the additional buoyancy "blisters" that are being added to the legs of the vessel has commenced.

DRILLING PROGRAMME

Drilling operations on Norvarg appraisal well completed - reserves and development options evaluation to commence

NORVARG APPRAISAL WELL - NORWAY

Drilling of the TOTAL E&P Norge operated Norvarg appraisal well in the Norwegian sector of the Barents North Sea was completed in August 2013. Two formation tests were carried out in the upper and lower parts of the Kobbe Formation, with the well flowing at a maximum gross production rate of approximately 6.2 million standard cubic of feet per day on a 52/64-inch choke. An extensive data acquisition programme was completed, including wire line logging, coring and fluid sampling, and work will now be undertaken by the Operator to evaluate the estimated recoverable hydrocarbons on the structure. Downhole pressure gauges have been installed in the well to recover long term pressure build-up data that will be used to evaluate the extent of the reservoir.

HANDCROSS

The Company is in the process of preparing for the drilling of the operated exploration well on the Handcross prospect located in the West of Shetlands basin. The Stena Carron drillship will be used for the drilling operations and it is anticipated that it will be on location at the end of 2013.

CORPORATE ACTIVITIES

Efficient execution of Valiant acquisition integration plan - maximising shareholder value

Enlarged Senior Borrowing Base facility to be established in H2 2013

Valiant Petroleum plc Acquisition & Integration

On April 19, 2013 the Company completed the acquisition of Valiant. Since this time, the Company has efficiently executed its integration plan to maximise the value of the acquisition.

· All Valiant's UK assets have been integrated into Ithaca's existing organisation and Valiant's UK office has been closed - this is expected to yield approximately $20 million per annum of overhead savings.

· All future UK exploration and appraisal well commitments transferred as a result of the Valiant acquisition have been farmed out with material expenditure carries being paid by the companies farming in to the licences - removing approximately $75 million of net UK exploration expenditure, while creating upside exposure to future wells at an anticipated net cost of under $10 million.

· A re-focused strategy has been established for the Norwegian business, targeting lower risk geology / geography, with new leadership.

· Mr Lars Thorrud, previously Vice President Business Development in Det Norske Oljeselskap ASA (Norway), will be taking up the position of General Manager of the Company's Norwegian subsidiary from September 1, 2013. Mr Thorrud, a geologist by background, has been working in the North Sea oil and gas industry for over 24 years in various senior technical and commercial management positions. He brings a wealth of experience of building and monetising Norwegian exploration and appraisal portfolios.

UK EXPLORATION FARM-OUTS

Four significant farm-out transactions have been executed to effectively restructure and de-risk the UK exploration and appraisal portfolio acquired from Valiant. In addition to the main farm-out transactions listed below, the Company has also withdrawn from a number of licences in the portfolio transferred from Valiant.

· Handcross - P1631 & P1832 (Blocks 204/14c, 204/18b & 204/19c): farm-outs have been executed with RWE Dea UK SNS Limited and a subsidiary of Edison International SpA reducing Ithaca's paying interest in the operated West of Shetland exploration well to be drilled in late 2013 from 100% to 6%, while retaining a 45% working interest.

· Beverley - P1792 (Blocks 21/30f, 22/26c): farm-out executed with Shell UK Limited, resulting in Ithaca reducing its 40% interest in the non-operated Central North Sea exploration well to 20%, in return for a partial carry of the costs of a well on the Beverly prospect.

· Isabella - P1820 (Blocks 30/6b, 30/11a & 30/12d): farm-out executed with Maersk Oil North Sea UK Limited, resulting in Ithaca reducing its 50% interest in the non-operated Central North Sea exploration well to 20%, in return for a partial carry of the costs of a well on the Isabella prospect.

With the completion of the above farm-outs, the Company has exceeded its expectations in respect of the restructuring of the UK exploration and appraisal programmes. The Company will continue to farm-out, divest or relinquish the Valiant UK exploration portfolio in order to create further value.

BRIDGE LOAN FACILITY

The Company remains on schedule to refinance the existing $350 million Bridge Loan facility, which was fully drawn on April 19, 2013 as part of financing the Valiant acquisition, into an enlarged Senior Borrowing Base facility in the second half of the year.

NORWEGIAN DEBT FACILITY

On July 1, 2013 the company signed a NOK 450 million (~$75 million) Norwegian Exploration Financing Facility. Under the Norwegian tax regime, 78% of exploration, appraisal and supporting expenditure resulting from operations on the Norwegian Continental Shelf is refunded by the Government in the December of the year following the year the costs were incurred. This facility will accelerate the receipt of 95% of the tax refund receivable from the Norwegian Government, significantly increasing financial flexibility and assisting Ithaca's growth in Norway. This is a conventional tax refund facility, on industry standard terms.

COMMODITY HEDGING

4.3MMbbl of future 2013-14 oil production hedged at ~$103/bbl

In the quarter, the Company received $9.4 million through the settlement of commodity hedges relating to approximately 0.7 million barrels of oil and the exercise of an option to swap 1 million barrels of production at $107/bbl. On the day of exercise, the Brent forward curve for the period to which the hedge related was at $101 / bbl resulting in the swaption being converted to a cash settlement of $6 million and a forward swap of 1 million barrels of production at $101 / bbl.

Following the above transactions, 4.3 million barrels of future 2013-14 oil production is hedged at a weighted average price of around $103 / bbl (approximately 30% puts / 70% swaps).

The Company recognised a gain of $6.6 million through the revaluation of oil swaps and put options. The hedging instruments are measured at June 30, 2013 and a valuation attributed based on the Brent oil forward curve on that date (spot Brent was trading at $102.4/bbl on June 30, 2013). The gains relate to movement in the Brent oil forward curve, and an increase in the implied volatility.

Q2 2013 RESULTS OF OPERATIONS

REVENUE

Record quarterly revenue of $128.4 million

Three Months Ended June 30, 2013

Revenue increased by $92.6 million in Q2 2013 to $128.4 million (Q2 2012: $35.8 million). This was mainly driven by an increase in oil sales volumes, partially offset by a reduction in the oil price.

Oil sales volumes increased primarily due to the inclusion of sales from the Dons and Causeway fields from April 19, 2013 following the acquisition of Valiant. In addition, there was a significant increase from the Athena field (first oil May 2012) and the additional Cook Acquisition (transaction completed in Q1 2013) offset by lower volumes from the Beatrice and Jacky fields attributable to planned shutdowns.

Average realised oil prices decreased quarter on quarter from $110/bbl in Q2 2012 to $103/bbl in Q2 2013. The average Brent price for the quarter was $102/bbl compared to $108/bbl for Q2 2012. The Company's realised oil prices do not strictly follow the Brent price pattern given the various oil sales contracts in place, with certain field sales sold at a discount or premium to Brent. This decrease in average realised oil price was nonetheless offset by a realised hedging gain of $8/bbl in Q2 2013.

Q2 2013 gas sales increased compared to Q2 2012, although volumes remain modest, accounting for only 2% of total revenue.

Six Months Ended June 30, 2013

Revenue increased by $111.8 million in H1 2013 to $188.1 million (H1 2012: $76.3 million). This movement mainly comprises an increase in oil sales volumes, partially offset by a reduction in oil price.

In line with the above quarterly movement, oil sales volumes increased primarily due to the inclusion of sales from the Dons and Causeway fields acquired from Valiant as well as the additional interest acquired in the Cook field, offset by lower volumes from the Beatrice and Jacky fields attributable to planned shutdowns.

Total gas sales increased primarily as a result of higher realised gas prices, with an increase from $37/boe to $44/boe, partially offset by lower production volumes in the period.

COST OF SALES

Three Months Ended June 30, 2013

Cost of sales increased in Q2 2013 to $103.5 million (Q2 2012: $30.0 million) due to increases in operating costs, depletion, depreciation and amortisation ("DD&A") and movement in oil and gas inventory.

Operating costs increased in the quarter to $43.2 million (Q2 2012: $15.4 million) primarily due to the inclusion of costs for the Dons and Causeway fields acquired from Valiant, plus the additional acquired interest in the Cook field.

Unit operating costs decreased to $39/boe in the period (Q2 2012: $43/boe) mainly as a result of the inclusion of the lower cost Dons and Causeway fields acquired from Valiant. Unit operating costs were not reduced further in the quarter because of the planned Beatrice shutdown and a light well intervention campaign on the West Don field. Absent these two events, the combined unit operating cost would have been approximately $35/boe following the Valiant acquisition.

DD&A for the quarter increased to $41.4 million (Q2 2012: $11.1 million). This was primarily due to higher production volumes in Q2 2013 as a result of the addition of the Dons and Causeway fields, together with a full quarter of production from the Athena field and the additional acquired interest in the Cook field. The blended DD&A rate for the quarter increased to $37/boe (Q2 2012: $30/boe). The blended DD&A rate in Q2 2012 was unusually low due to the production mix, however the driver for the increase has been "business combination" accounting for transactions.

As the below "Changes in Accounting Policies" section outlines, the adoption of IFRS and accounting for acquisitions as business combinations has led to increased DD&A rates. It should be noted that this increase in DD&A, and hence Cost of Sales, is offset by a credit in the Deferred Tax charged through the Statement of Income.

An oil and gas inventory movement of $18.1 million was charged to cost of sales in Q2 2013 (Q2 2012 charge of $3.5 million). Movements in oil inventory arise due to differences between barrels produced and sold, with production being recorded as a credit to movement in oil inventory through cost of sales until the oil has been sold. In Q2 2013 more barrels of oil were sold (1,213k bbls) than produced (1,041k bbls), as a result of significant Cook field liftings.

Six Months Ended June 30, 2013

Cost of sales increased in H1 2013 to $149.9 million (H1 2012: $56.0 million) due to increases in operating costs and DD&A and movement in oil and gas inventory.

Operating costs increased in the period to $66.4 million (H1 2012: $31.1 million) primarily due to the inclusion of costs for the Dons and Causeway fields acquired from Valiant, plus increased Athena costs (only part period in 2012) and the additional interest acquired in the Cook field as noted above.

DD&A for the period increased to $60.9 million (H1 2012: $24.5 million). This was primarily due to higher production volumes in H1 2013 with the addition of the Dons and Causeway fields, together with a full quarter of production from the Athena field and the additional interest in the Cook field.

An oil and gas inventory movement of $21.7 million was charged to cost of sales in H1 2013 (H1 2012: charge of $0.4 million). In H1 2013 more barrels of oil were sold (1,741k bbls) than produced (1,536k bbls), again mainly as a result of Cook field liftings in Q2.

ADMINISTRATION & EXPLORATION & EVALUATION EXPENSES

Three Months Ended June 30, 2013

Total administrative expenses increased in the quarter to $4.0 million (Q1 2012: $1.2 million) primarily due to an increase in general and administrative expenses as a result of the continued growth of the Company, including the associated costs of an enlarged Ithaca group post the Valiant acquisition. Share based payment expenses increased as a result of options being granted towards the end of 2012 (none end 2011), therefore higher amortisation expense has been reflected through Q2 2013.

Valiant acquisition costs of $9.6 million were incurred in the quarter with approximately half of the costs relating to advisory fees and the other half to restructuring costs. The post-acquisition restructuring is now complete, with Valiant's UK office now closed and new management in place in Norway.

Exploration and evaluation expenses of $0.1 million were recorded in the quarter (Q2 2012: $0.0 million) primarily due to the expensing of previously capitalised costs relating to areas where exploration and evaluation activities have ceased.

Six Months Ended June 30, 2013

Total administrative expenses increased in the period to $5.5 million (H1 2012: $2.4 million) primarily associated with an increase in general and administrative expenses as a result of the associated costs of an enlarged Ithaca group post the Valiant acquisition as well as higher levels of corporate activity, particularly in the first quarter of the year.

FOREIGN EXCHANGE & FINANCIAL INSTRUMENTS

Three Months Ended June 30, 2013

A foreign exchange loss of $2.6 million was recorded in Q2 2013 (Q2 2012: $1.5 million). The majority of the Company's revenue is US dollar driven while operating expenditures are primarily incurred in British pounds. As such, general volatility in the USD:GBP exchange rate is the driver behind the foreign exchange gains and losses, particularly on the revaluation of the GBP bank accounts (USD:GBP 1.52 at the start and end of the quarter but fluctuating between 1.50 and 1.58 during the quarter). This volatility was partially offset by the foreign exchange hedges and resultant gains described below.

The Company recorded a $17.5 million gain on financial instruments for the quarter ended June 30, 2013 (Q2 2012: $19.3 million). The gain was predominantly due to a $9.4 million realised gain on commodity hedges together with a $6.6 million increase in the value of oil swaps and put options, due to a reduction in the Brent oil forward curve, and an increase in the implied volatility. In addition, the Company realised a gain of $0.8 million on foreign exchange instruments as well as a $0.6 million gain on the revaluation of foreign exchange instruments. The Company continues to limit exposure to fluctuations in foreign currencies with forward contracts to hedge a further £100 million and €30 million of capital expenditure on the GSA development at rates of $1.52: £1.00 and $1.29: €1.00.

Six Months Ended June 30, 2013

A foreign exchange loss of $2.1 million was recorded in H1 2013 (H1 2012: $0.1 million gain). As above, general volatility in the USD:GBP exchange rate was the main driver behind the foreign exchange loss in H1 2013 (USD:GBP at January 1, 2013: 1.62. USD:GBP at June 30, 2013: 1.52 with fluctuations between 1.48 and 1.64 during the period).

The Company recorded a $10.3 million gain on financial instruments for the six months ended June 30, 2013 (H1 2012: $18.6 million). This was primarily driven by a $13.6 million realised gain on commodity hedges, including a $6 million settlement on the swaption conversion, partially offset by a $2.4 million downwards revaluation of commodity hedges due to a reduction in value of oil swaps and put options together with a $1.5 million loss on the revaluation of foreign exchange instruments.

NEGATIVE GOODWILL

If the cost of an acquisition is more than the fair value of net assets acquired, the difference is recognised on the balance sheet as goodwill. Conversely, if the cost of an acquisition is less than the fair value of the assets acquired, the difference is recognised as negative goodwill in the statement of income. As a result of business combination accounting for the Valiant acquisition, $48.0 million of negative goodwill was recognised in the quarter ended June 30, 2013. In addition, $0.9 million negative goodwill was recognised in Q1 2013 in relation to the Cook Acquisition representing negative goodwill of $48.9 million in the six month period ended June 30, 2013.

TAXATION

No UK tax anticipated to be payable in the mid-term

Three Months Ended June 30, 2013

A tax charge of $16.9 million was recognised in the quarter ended June 30, 2013 (Q2 2012: $8.5 million credit). $18.5 million is a non-cash charge relating to UK taxation and is a product of adjustments to the deferred tax charge primarily relating to the UK Ring Fence Expenditure Supplement and share based payments. As noted in the Cost Of Sales section the deferred tax credit is increased by the use of accounting for acquisitions as business combinations.

The remaining $1.6 million credit is due to Norway tax refunds which have been generated as a result of exploration expenditure, incurred by Ithaca's Norwegian operations, expensed in the statement of income. Further Norwegian tax refunds totalling $70 million relate to Norwegian capital expenditure and are recognised on the balance sheet.

As a result of the above factors, profit after tax decreased to $52.2 million (Q2 2012: $30.2 million).

Six Months Ended June 30, 2013

A tax charge of $15.7 million was recognised in the six months ended June 30, 2013 (H1 2012: $7.7 million credit). $17.3 million of this non-cash charge relates to UK taxation and is a product of

adjustments to the deferred tax charge primarily relating to the UK Ring Fence Expenditure Supplement and share based payments.

The remaining $1.6 million credit is due to Norway tax credits which have been generated as a result of exploration expenditure incurred by Ithaca's Norwegian operations.

As a result of the above factors, profit after tax decreased to $55.7 million (H1 2012: $43.2 million).

No taxes are expected to be paid in the mid-term relating to upstream oil and gas activities as a result of the $923 million UK tax allowances pool available to the Company.

CAPITAL INVESTMENTS

Capital expenditure driven by significant investment in development projects and the acquisition of Valiant

$608 million of the total $748 million capital additions to D&P assets in H1 2013 was attributable to the fair value on acquisition of the Valiant producing fields resulting from business combination accounting (the total acquisition cost being $293.6 million). The remaining D&P additions of $140 million relate primarily to the acquisition of the additional interest in the Cook field and execution of the GSA development, with the main areas of expenditure being on the manufacture and fabrication of subsea infrastructure and execution of the FPF-1 modification works (as described above).

Capital expenditure on E&E assets in H1 2013 was $29.7 million, offset by a $24.2 million release of the acquired E&E liability, resulting in a net addition of $5.5 million. Expenditure was primarily focused on the Storbarden and Norvarg exploration and appraisal wells in Norway as well as UK development projects. As part of the Valiant acquisition accounting, a liability was created to cover the committed exploration spend along with a corresponding asset for the associated Norwegian tax credit receivable. This liability is released as the spend is incurred, essentially resulting in a nil asset value within PP&E.

LIQUIDITY AND CAPITAL RESOURCES

As at June 30, 2013, Ithaca had a working capital credit of $19.9 million including a cash balance of $30.3 million. Available cash has been, and is currently, invested in money market deposit accounts with BNP Paribas ("BNPP"). Management has received confirmation from the financial institution that these funds are available on demand.

Cash and cash equivalents remained relatively constant period on period with other working capital movements driven by the timing of receipts and payments of balances.

A significant proportion of Ithaca's accounts receivable balance is with customers in the oil and gas industry and is subject to normal joint venture/industry credit risks. The Company assesses partners' credit worthiness before entering into joint venture agreements. The Company regularly monitors all customer receivable balances outstanding in excess of 90 days. As at June 30, 2013, substantially all of the accounts receivable is current, being defined as less than 90 days. In the past, the Company has not experienced credit loss in the collection of accounts receivable.

At June 30, 2013, Ithaca had two loan facilities totalling $780 million, being the existing BNPP facility (the "Facility") of $430 million and an additional bridge loan (the "Bridge Facility") of $350 million. At quarter end, the Company had unused credit facilities totalling $404 million (Q4 2012: $430 million). $376 million was drawn down under the facilities at June 30, 2013, being $30 million drawn under the Facility and $346 million drawn under the Bridge Facility.

During the quarter ended June 30, 2013, there was a net cash outflow of approximately $38.5 million (Q2 2012: inflow of $21.9 million).

Cashflow from Operations

Cash generated from operating activities in Q2 2013 was $65.0 million primarily due to cash generated from Athena, Beatrice, Jacky, Anglia, Cook and Broom operations, augmented in Q2 2013 primarily due to the inclusion of Dons and Causeway operations.

Cashflow from Financing Activities

Cash generated from financing activities in Q2 2013 was $196.9 million primarily due to the draw down of the existing debt facility in Q2 2013 ($320 million), partially offset by the repayment of the existing Valiant loan ($115 million).

Cashflow from Investing Activities

Cash used in investing activities in Q2 2013 was $259.4 million primarily due to the cash consideration paid on the Valiant acquisition as well as further capital expenditure on the GSA development, including modification of the FPF-1 and subsea infrastructure fabrication works.

The Company continues to be fully funded, with more than sufficient financial resources to cover its anticipated future commitments from its existing cash balance, debt facilities and forecast cashflow from operations. No unusual trends or fluctuations are expected outside the ordinary course of business.

COMMITMENTS

The engineering financial commitments relate to committed capital expenditure on the Stella and Harrier fields, as well as ongoing capital expenditure on existing producing fields. Rig commitments reflect rig hire costs committed in relation to the anticipated Stella wells. As stated above, these commitments are expected to be funded through the Company's existing cash balance, forecast cashflow from operations and its debt facility.

OUTSTANDING SHARE INFORMATION

The Company's common shares are traded on the Toronto Stock Exchange ("TSX") in Canada under the symbol "IAE" and on the Alternative Investment Market ("AIM") in the UK under the symbol "IAE".

As at June 30, 2013, Ithaca had 317,365,658 common shares outstanding along with 19,614,630 options outstanding to employees and directors to acquire common shares.

In Q2 2013, a total of 56,952,321 new Ithaca common shares were issued and allotted to holders of Valiant shares as part of the Valiant acquisition consideration. Admission of the new shares to trading on AIM and the TSX occurred by April 22, 2013.

No options were granted by the Board of Directors in the quarter ended June 30, 2012.

As at August 10, 2013, Ithaca had 317,365,658 common shares outstanding along with 19,614,630 options outstanding to employees and directors to acquire common shares.

(1) Represents the TSX close price (CAD$1.78 on last trading day of June, 2013. US$:CAD$ 0.95 on June 30, 2013

SUMMARY OF QUARTERLY RESULTS

The most significant factors to have affected the Company's results during the above quarters, other than transactions such as the Valiant acquisition, are fluctuation in underlying commodity prices and movement in production volumes. The Company has utilised forward sales contracts and foreign exchange contracts to take advantage of higher commodity prices while reducing the exposure to price volatility. These contracts can cause volatility in profit after tax as a result of unrealised gains and losses due to movements in the oil price and USD : GBP exchange rate.

Q3 2011 was restated following the Company's election to present all acquisitions since the IFRS transition date as business combinations in accordance with IFRS 3(R). Refer to the "Changes in Accounting Policies" below for more details.

FINANCIAL INSTRUMENTS

All financial instruments are initially measured in the balance sheet at fair value. Subsequent measurement of the financial instruments is based on their classification. The Company has classified each financial instrument into one of these categories: held-for-trading, held-to-maturity investments, loans and receivables, or other financial liabilities. Loans and receivables, held-to-maturity investments and other financial liabilities are measured at amortised cost using the effective interest rate method. For all financial assets and financial liabilities that are not classified as held-for-trading, the transaction costs that are directly attributable to the acquisition or issue of a financial asset or financial liability are adjusted to the fair value initially recognised for that financial instrument. These costs are expensed using the effective interest rate method and are recorded within interest expense. Held-for-trading financial assets are measured at fair value and changes in fair value are recognised in net income.

All derivative instruments are recorded in the balance sheet at fair value unless they qualify for the expected purchase, sale and usage exemption. All changes in their fair value are recorded in income unless cash flow hedge accounting is used, in which case changes in fair value are recorded in other comprehensive income until the hedged transaction is recognised in net earnings.

The Company has classified its cash and cash equivalents, restricted cash, derivatives, commodity hedges and long term liability as held-for-trading, which are measured at fair value with changes being recognised in net income. Accounts receivable are classified as loans and receivables; operating bank loans, accounts payable and accrued liabilities are classified as other liabilities, all of which are measured at amortised cost. The classification of all financial instruments is the same at inception and at June 30, 2013.

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

The following table summarises the commodity hedges in place at the end of the quarter.

The table below summarises the foreign exchange financial instruments in place at the end of Q2 2013.

CONSOLIDATION

The consolidated financial statements of the Company and the financial data contained in this management's discussion and analysis ("MD&A") are prepared in accordance with international financial reporting standards ("IFRS").

The consolidated financial statements include the accounts of Ithaca and its wholly-owned subsidiaries Ithaca Energy (Holdings) Limited ("Ithaca Holdings"), Ithaca Energy (UK) Limited ("Ithaca UK"), Ithaca Minerals North Sea Limited ("Ithaca Minerals") and Ithaca Energy Holdings (UK) Limited ("Ithaca Holdings UK") and its associates FPU Services Limited ("FPU") and FPF-1 Limited ("FPF-1").

The consolidated financial statements also include, from 19 April 2013 only (being the acquisition date) the Valiant group of companies, comprising the following companies:

· Ithaca Petroleum Limited (formerly Valiant Petroleum plc)

· Ithaca Causeway Limited (formerly Valiant Causeway Limited)

· Ithaca Exploration Limited (formerly Valiant Exploration Limited)

· Ithaca Alpha (NI) Limited (formerly Valiant Alpha (NI) Limited

· Ithaca Gamma Limited (formerly Valiant Gamma Limited)

· Ithaca Epsilon Limited (formerly Valiant Epsilon Limited)

· Ithaca Delta Limited (formerly Valiant Delta Limited)

· Ithaca Petroleum Holdings AS (formerly Valiant Petroleum Holdings AS)

· Ithaca Petroleum Norge AS (formerly Valiant Petroleum Norge AS)

· Ithaca Technology AS (formerly Valiant Technology AS)

· Ithaca AS (formerly Querqus AS)

· Ithaca Petroleum EHF (formerly Valiant Petroleum EHF)

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

CRITICAL ACCOUNTING ESTIMATES

Certain accounting policies require that management make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These accounting policies are discussed below and are included to aid the reader in assessing the critical accounting policies and practices of the Company and the likelihood of materially different results being reported. Ithaca's management reviews these estimates regularly. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates.

The following assessment of significant accounting policies and associated estimates is not meant to be exhaustive. The Company might realise different results from the application of new accounting standards promulgated, from time to time, by various rule-making bodies.

Capitalised costs relating to the exploration and development of oil and gas reserves, along with estimated future capital expenditures required in order to develop proved and probable reserves are depreciated on a unit-of-production basis, by asset, using estimated proved and probable reserves as adjusted for production.

A review is carried out each reporting date for any indication that the carrying value of the Company's D&P assets may be impaired. For D&P assets where there are such indications, an impairment test is carried out on the Cash Generating Unit ("CGU"). Each CGU is identified in accordance with IAS 36. The Company's CGUs are those assets which generate largely independent cash flows and are normally, but not always, single developments or production areas. The impairment test involves comparing the carrying value with the recoverable value of an asset. The recoverable amount of an asset is determined as the higher of its fair value less costs to sell and value in use, where the value in use is determined from estimated future net cash flows. Any additional depreciation resulting from the impairment testing is charged to the Statement of Income.

Goodwill is tested annually for impairment and also when circumstances indicate that the carrying value may be at risk of being impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU to which the goodwill relates. Where the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised in the Statement of Income. Impairment losses relating to goodwill cannot be reversed in future periods.

Recognition of decommissioning liabilities associated with oil and gas wells are determined using estimated costs discounted based on the estimated life of the asset. In periods following recognition, the liability and associated asset are adjusted for any changes in the estimated amount or timing of the settlement of the obligations. The liability is accreted up to the actual expected cash outlay to perform the abandonment and reclamation. The carrying amounts of the associated assets are depleted using the unit of production method, in accordance with the depreciation policy for development and production assets. Actual costs to retire tangible assets are deducted from the liability as incurred.

All financial instruments, other than those designated as effective hedging instruments, are initially recognised at fair value on the balance sheet. The Company's financial instruments consist of cash, restricted cash, accounts receivable, deposits, derivatives, accounts payable, accrued liabilities and the long term liability on the Beatrice acquisition. Measurement in subsequent periods is dependent on the classification of the respective financial instrument.

In order to recognise share based payment expense, the Company estimates the fair value of stock options granted using assumptions related to interest rates, expected life of the option, volatility of the underlying security and expected dividend yields. These assumptions may vary over time.

The determination of the Company's income and other tax liabilities / assets requires interpretation of complex laws and regulations. Tax filings are subject to audit and potential reassessment after the lapse of considerable time. Accordingly, the actual income tax liability may differ significantly from that estimated and recorded on the financial statements.

The accrual method of accounting will require management to incorporate certain estimates of revenues, production costs and other costs as at a specific reporting date. In addition, the Company must estimate capital expenditures on capital projects that are in progress or recently completed where actual costs have not been received as of the reporting date.

CONTROL ENVIRONMENT

Ithaca has established disclosure controls, procedures and corporate policies so that its consolidated financial results are presented accurately, fairly and on a timely basis. The Chief Executive Officer and Chief Financial Officer have designed, or have caused such internal controls over financial reporting to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of the Company's financial statements in accordance with IFRS with no material weaknesses identified.

Based on their inherent limitations, disclosure controls and procedures and internal controls over financial reporting may not prevent or detect misstatements and even those options determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

As of June 30, 2013, there were no changes in Ithaca's internal control over financial reporting that occurred during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

CHANGES IN ACCOUNTING POLICIES

On January 1, 2011, the Company adopted IFRS using a transition date of January 1, 2010. The financial statements for the quarter ended June 30, 2013, including required comparative information, have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IASB").

The Company elected to present all acquisitions since the IFRS transition date as business combinations in accordance with IFRS 3(R).

One impact of accounting for acquisitions as business combinations is the recognition of asset values, upon which the DD&A rate is calculated as pre-tax fair values and the recognition of a deferred tax liability on estimated future cash flows. With current tax rates at 62% this increases the DD&A charge for such assets. An offsetting reduction is recognised in the deferred tax charged through the consolidated statement of income.

In May 2011, the IASB issued the following standards: IFRS 10, Consolidated Financial Statements ("IFRS 10"), IFRS 11, Joint Arrangements ("IFRS 11"), IFRS 12, Disclosure of Interests in Other Entities ("IFRS 12"), IAS 27, Separate Financial Statements ("IAS 27"), IFRS 13, Fair Value Measurement ("IFRS 13") and amended IAS 28, Investments in Associates and Joint Ventures ("IAS 28"). Each of the new standards is effective for annual periods beginning on or after 1 January 2013. There has been no material impact from the adoption of the new and amended standards on the Company's financial statements.

OTHER

Non-IFRS Measures

'Cashflow from operations' referred to in this MD&A is not prescribed by IFRS. This non-IFRS financial measure does not have any standardised meaning and therefore is unlikely to be comparable to similar measures presented by other companies. The Company uses this measure to help evaluate its performance. As an indicator of the Company's performance, cashflow from operations should not be considered as an alternative to, or more meaningful than, net cash from operating activities as determined in accordance with IFRS. The Company considers Cashflow from operations to be a key measure as it demonstrates the Company's underlying ability to generate the cash necessary to fund operations and support activities related to its major assets. Cashflow from operations is determined by adding back changes in non-cash operating working capital to cash from operating activities.

BOE Presentation

The calculation of boe is based on a conversion rate of six thousand cubic feet of natural gas ("mcf") to one barrel of crude oil ("bbl"). The term boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6 mcf: 1 bbl, utilising a conversion ratio at 6 mcf: 1 bbl may be misleading as an indication of value.

Well Test Results

Certain well test results disclosed in this MD&A represent short-term results, which may not necessarily be indicative of long-term well performance or ultimate hydrocarbon recovery there from.

Off Balance Sheet Arrangements

The Company has certain lease agreements and rig commitments which were entered into in the normal course of operations, all of which are disclosed under the heading "Commitments", above. Leases are treated as either operating leases or finance leases based on the extent to which risks and rewards incidental to ownership lie with the lessor or the lessee under IAS 17. No asset or liability value has been assigned to any leases on the balance sheet as at June 30, 2013.

Related Party Transactions

A director of the Company is a partner of Burstall Winger LLP who acts as counsel for the Company. The amount of fees paid to Burstall Winger LLP in Q2 2013 was $0.0 million (Q2 2012: $0.1 million). These transactions are in the normal course of business and are conducted on normal commercial terms with consideration comparable to those charged by third parties.

As at June 30, 2013 the Company had a loan receivable from FPF-1 Ltd, an associate of the Company, for $21.6 million (Q2 2012: $21.6 million) as a result of the completion of the GSA transactions in 2012.

RISKS AND UNCERTAINTIES

The business of exploring for, developing and producing oil and natural gas reserves is inherently risky. There is substantial risk that the manpower and capital employed will not result in the finding of new reserves in economic quantities. There is a risk that the sale of reserves may be delayed due to processing constraints, lack of pipeline capacity or lack of markets. The Company is dependent upon the production rates and oil price to fund the current development program.

For additional detail regarding the Company's risks and uncertainties, refer to the Company's Annual Information Form dated March 25, 2013, (the "AIF") filed on SEDAR at www.sedar.com.

RISK

MITIGATIONS

Commodity Price Volatility

The Company's performance is significantly impacted by prevailing oil and natural gas prices, which are primarily driven by supply and demand as well as economic and political factors.

In order to mitigate the risk of fluctuations in oil and gas prices, the Company routinely executes commodity price derivatives, predominantly in relation to oil production, as a means of establishing a floor in realised prices.

Foreign Exchange Risk

The Company is exposed to financial risks including financial market volatility and fluctuation in various foreign exchange rates.

Given the increasing proportion of development capital expenditure and operating costs incurred in currencies other than the United States dollar, the Company routinely executes hedges to mitigate foreign exchange rate risk on committed expenditure.

Interest Rate Risk

The Company is exposed to fluctuation in interest rates, particularly in relation to the debt facilities entered into.

In order to mitigate the fluctuations in interest rates, the Company routinely reviews cost exposures as a result of varying rates and assesses the need to lock in interest rates.

Debt Facility Risk

The Company is exposed to borrowing risks relating to drawdown of its debt facilities (the "Facilities"). The ability to drawdown the Facilities is based on the Company meeting certain covenants including coverage ratio tests, liquidity tests and development funding tests which are determined by a detailed economic model of the Company. There can be no assurance that the Company will satisfy such tests in the future in order to have access to the full amount of the Facilities.

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

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

The Company believes that there are no circumstances at present that result in its failure to meet the financial tests and it can therefore draw down upon its Facilities.

The Company routinely produces detailed cashflow forecasts to monitor its compliance with the financial tests and liquidity requirements of the Facilities.

Financing Risk

To the extent cashflow from operations and the Facilities' resources are ever deemed not adequate to fund Ithaca's cash requirements, external financing may be required. Lack of timely access to such additional financing, or access on unfavourable terms, could limit the future growth of the business of Ithaca. To the extent that external sources of capital, including public and private markets, become limited or unavailable, Ithaca's ability to make the necessary capital investments to maintain or expand its current business and to make necessary principal payments under the Facilities may be impaired.

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

The Company has established a fully funded business plan and routinely monitors its detailed cashflow forecasts and liquidity requirements to maintain its funding requirements. The Company believes that there are no circumstances at present that would lead to selected divestment, delays to existing programs or a default relating to the Facility.

Third Party Credit Risk

The Company is and may in the future be exposed to third party credit risk through its contractual arrangements with its current and future joint venture partners, marketers of its petroleum production and other parties. The Company extends unsecured credit to these parties, and therefore, the collection of any receivables may be affected by changes in the economic environment or other conditions.

The Company believes this risk is mitigated by the financial position of the parties. All of the Company's oil production from the Beatrice, Jacky and Athena fields is sold to BP Oil International Limited. Oil production from Cook, Broom, Causeway, Fionn and Dons is sold to Shell Trading International Ltd. Anglia and Topaz gas production is sold through contracts to RWE NPower PLC and Hess Energy Gas Power (UK) Ltd. Cook gas is sold to Shell UK Ltd. and Esso Exploration & Production UK Ltd. The Company has not experienced any material credit loss in the collection of accounts receivable to date.

The joint venture partners in those assets operated by the Company are largely well financed international companies. Where appropriate, a cash call process has been implemented with the GSA partners to cover high levels of anticipated capital expenditure thereby reducing any third party credit risk.

Property Risk

The Company's properties will be generally held in the form of licenses, concessions, permits and regulatory consents ("Authorisations"). The Company's activities are dependent upon the grant and maintenance of appropriate Authorisations, which may not be granted; may be made subject to limitations which, if not met, will result in the termination or withdrawal of the Authorisation; or may be otherwise withdrawn. Also, in the majority of its licenses, the Company is often a joint interest-holder with another third party over which it has no control. An Authorisation may be revoked by the relevant regulatory authority if the other interest-holder is no longer deemed to be financially credible.

There can be no assurance that any of the obligations required to maintain each Authorisation will be met. Although the Company believes that the Authorisations will be renewed following expiry or granted (as the case may be), there can be no assurance that such

The Company has routine ongoing communications with the UK oil and gas regulatory body, the Department of Energy and Climate Change ("DECC"). Regular communication allows all parties to an Authorisation to be fully informed as to the status of any Authorisation and ensures the Company remains updated regarding fulfilment of any applicable requirements.

authorisations will be renewed or granted or as to the terms of such renewals or grants. The termination or expiration of the Company's Authorisations may have a material adverse effect on the Company's results of operations and business.

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

Operational Risk

The Company is subject to the risks associated with owning oil and natural gas properties, including environmental risks associated with air, land and water. All of the Company's operations are conducted offshore in the United Kingdom Continental Shelf; as such Ithaca is exposed to operational risk associated with weather delays that can result in a material delay in project execution. Third parties operate some of the assets in which the Company has interests. As a result, the Company may have limited ability to exercise influence over the operations of these assets and their associated costs. The success and timing of these activities may be outside the Company's control.

There are numerous uncertainties in estimating the Company's reserve base due to the complexities in estimating the magnitude and timing of future production, revenue, expenses and capital.

The Company acts at all times as a reasonable and prudent operator. The Company takes out market insurance to mitigate many of these operational, construction and environmental risks.

The Company uses the services of Sproule International Limited ("Sproule") to independently assess the Company's reserves on an annual basis.

Competition Risk

In all areas of the Company's business, there is competition with entities that may have greater technical and financial resources.

The Company places appropriate emphasis on ensuring it attracts and retains high quality resources to enable it to maintain its competitive position.

FORWARD-LOOKING INFORMATION

This MD&A and any documents incorporated by reference herein contain certain forward-looking statements and forward-looking information which are based on the Company's internal expectations, estimates, projections, assumptions and beliefs as at the date of such statements or information, including, among other things, assumptions with respect to production, future capital expenditures, future acquisitions and cash flow. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "plan", "should", "believe", "could", "scheduled", "targeted", "approximately" and similar expressions are intended to identify forward-looking statements and forward-looking information. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements or information. The Company believes that the expectations reflected in those forward-looking statements and information are reasonable but no assurance can be given that these expectations, or the assumptions underlying these expectations, will prove to be correct and such forward-looking statements and information included in this MD&A and any documents incorporated by reference herein should not be unduly relied upon. Such forward-looking statements and information speak only as of the date of this MD&A and any documents incorporated by reference herein and the Company does not undertake any obligation to publicly update or revise any forward-looking statements or information, except as required by applicable laws.

In particular, this MD&A and any documents incorporated by reference herein, contains specific forward-looking statements and information pertaining to the following:

• the quality of and future net revenues from the Company's reserves;

• oil, natural gas liquids ("NGLs") and natural gas production levels;

• commodity prices, foreign currency exchange rates and interest rates;

• capital expenditure programs and other expenditures;

• the sale, farming in, farming out or development of certain exploration properties using third party resources;

• supply and demand for oil, NGLs and natural gas;

• the Company's ability to raise capital;

• the continued availability of the Main Facility and the Bridge Facility;

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

• the realisation of anticipated benefits from acquisitions and dispositions;

• the Company's ability to continually add to its reserves;

• schedules and timing of certain projects and the Company's strategy for growth;

• the Company's future operating and financial results;

• the ability of the Company to optimise operations and reduce operational expenditures;

• treatment under governmental and other regulatory regimes and tax, environmental and other laws;

• production rates;

• targeted production levels; and

• timing and cost of the development of the Company's reserves.

With respect to forward-looking statements contained in this MD&A and any documents incorporated by reference herein, the Company has made assumptions regarding, among other things:

• Ithaca's ability to obtain additional drilling rigs and other equipment in a timely manner, as required;

• access to third party hosts and associated pipelines can be negotiated and accessed within the expected timeframe;

• FDP approval and operational construction and development is obtained within expected timeframes;

• the Company's development plan for the Stella and Harrier discoveries will be implemented as planned;

• the effect of the Valiant acquisition on Ithaca;

• reserves volumes assigned to Ithaca's properties;

• ability to recover reserves volumes assigned to Ithaca's properties;

• revenues do not decrease below anticipated levels and operating costs do not increase significantly above anticipated levels;

• future oil, NGLs and natural gas production levels from Ithaca's properties and the prices obtained from the sales of such production;

• the level of future capital expenditure required to exploit and develop reserves;

• Ithaca's ability to obtain financing on acceptable terms, in particular, the Company's ability to access the Facility;

• the continued ability of the Company to collect from third parties who Ithaca has provided credit to;

• Ithaca's reliance on partners and their ability to meet commitments under relevant agreements; and

• the state of the debt and equity markets in the current economic environment.

The Company's actual results could differ materially from those anticipated in these forward-looking statements and information as a result of assumptions proving inaccurate and of both known and unknown risks, including the risk factors set forth in this MD&A and under the heading "Risk Factors" in the AIF and the documents incorporated by reference herein, and those set forth below:

• risks associated with the exploration for and development of oil and natural gas reserves in the North Sea;

• risks associated with the integration of Valiant into Ithaca's existing operations;

• risks associated with offshore development and production including transport facilities;

• operational risks and liabilities that are not covered by insurance;

• volatility in market prices for oil, NGLs and natural gas;

• the ability of the Company to fund its substantial capital requirements and operations;

• risks associated with ensuring title to the Company's properties;

• changes in environmental, health and safety or other legislation applicable to the Company's operations, and the Company's ability to comply with current and future environmental, health and safety and other laws;

• the accuracy of oil and gas reserve estimates and estimated production levels as they are affected by the Company's exploration and development drilling and estimated decline rates;

• the Company's success at acquisition, exploration, exploitation and development of reserves;

• risks associated with realisation of anticipated benefits of acquisitions;

• risks related to changes to government policy with regard to offshore drilling;

• the Company's reliance on key operational and management personnel;

• the ability of the Company to obtain and maintain all of its required permits and licenses;

• competition for, among other things, capital, drilling equipment, acquisitions of reserves, undeveloped lands and skilled personnel;

• changes in general economic, market and business conditions in Canada, North America, the United Kingdom, Europe and worldwide;

• actions by governmental or regulatory authorities including changes in income tax laws or changes in tax laws, royalty rates and incentive programs relating to the oil and gas industry including any increase in UK taxes;

• adverse regulatory rulings, orders and decisions; and

• risks associated with the nature of the common shares.

Additional Reader Advisories

The information in this MD&A is provided as of August 10, 2013. The Q2 2013 results have been compared to the results of the comparative period in 2012. This MD&A should be read in conjunction with the Company's unaudited consolidated financial statements as at June 30, 2013 and 2012 and with the Company's audited consolidated financial statements as at December 31, 2012 together with the accompanying notes and MD&A, and AIF for the 2012 fiscal year. Copies of these documents are available without charge from Ithaca or electronically on the internet on Ithaca's SEDAR profile at www.sedar.com.

Consolidated Statement of Income

For the three and six months ended 30 June 2013 and 2012

(unaudited)

Three months ended 30 June

Six months ended 30 June

Note

2013

US$'000

2012

US$'000

2013

US$'000

2012

US$'000

Revenue

4

128,360

35,779

188,129

76,332

Cost of sales

5

(103,449)

(29,979)

(149,907)

(55,985)

Gross Profit

24,911

5,800

38,222

20,347

Exploration and evaluation expenses

10

(132)

(4)

(443)

(79)

Administrative expenses

6

(3,989)

(1,238)

(6,078)

(2,444)

Non-recurring Valiant acquisition costs

6

(9,554)

-

(10,235)

-

Total administrative expenses

(13,543)

(1,238)

(16,313)

(2,444)

Operating Profit

11,236

4,558

21,466

17,824

Foreign exchange

(2,637)

(1,548)

(2,074)

103

Gain on financial instruments

25

17,514

19,339

10,342

18,610

Gain on asset disposal

-

205

-

205

Negative goodwill

12

47,964

-

48,878

-

Profit Before Interest and Tax

74,077

22,554

78,612

36,742

Finance costs

7

(5,001)

(902)

(7,277)

(1,371)

Interest income

21

69

42

134

Profit Before Tax

69,097

21,721

71,377

35,505

Taxation - UK deferred tax

23

(18,504)

8,517

(17,309)

7,651

Taxation - Norwegian

23

1,635

-

1,635

-

Profit After Tax

52,228

30,238

55,703

43,156

Earnings per share

Basic

22

0.17

0.12

0.20

0.20

Diluted

22

0.17

0.11

0.19

0.20

Consolidated Statement of Comprehensive Income

For the three and six months ended 30 June 2013 and 2012

(unaudited)

Three months ended 30 June

Six months ended 30 June

2013

US$'000

2012

US$'000

2013

US$'000

2012

US$'000

Profit for the period

52,228

30,238

55,703

43,156

Release of loss on oil price hedge

-

376

-

-

Other comprehensive income

-

376

-

-

Total comprehensive income

52,228

30,614

55,703

43,156

Consolidated Statement of Financial Position

(unaudited)

Note

30 June

2013

US$'000

31 December

2012

US$'000

ASSETS

Current assets

Cash and cash equivalents

27,091

31,374

Restricted cash

8

3,228

2

Accounts receivable

254,894

159,195

Deposits, prepaid expenses and other

23,852

14,754

Inventory

9

20,790

15,878

Derivative financial instruments

26

15,560

8,251

345,415

229,454

Non current assets

Long-term receivable

28

21,551

21,551

Investment in associate

14

18,337

18,337

Exploration and evaluation assets

10

52,442

47,390

Property, plant & equipment

11

1,303,713

615,788

Goodwill

13

985

985

Other non-current assets

7,738

-

1,404,766

704,051

Total assets

1,750,181

933,505

LIABILITIES AND EQUITY

Current liabilities

Trade and other payables

316,980

205,635

Exploration obligations

16

48,301

-

365,281

205,635

Non current liabilities

Bank debt

15

368,823

-

Decommissioning liabilities

17

140,998

52,834

Other long term liabilities

18

2,866

3,018

Contingent consideration

19

4,000

4,000

Derivative financial instruments

26

1,596

-

Deferred tax liability

109,970

62,370

628,253

122,222

Net Assets

756,647

605,648

Equity attributable to equity holders

Share capital

20

524,908

431,318

Share based payment reserve

21

22,046

20,340

Retained earnings

209,693

153,990

Shareholders' Equity

756,647

605,648

The financial statements were approved by the Board of Directors on 12 August 2013 and signed on its behalf by:

"Jay Zammit"

Director

"John Summers"

Director

Consolidated Statement of Changes in Equity

(unaudited)

Share Capital

Share based

payment

reserve

Retained

Earnings

Total

US$'000

US$'000

US$'000

US$'000

Balance, 1 Jan 2012

429,502

17,318

60,591

507,411

Net income for the period

-

-

43,156

43,156

Total comprehensive income

429,502

17,318

103,747

550,567

Share based payment

-

1,615

-

1,615

Options exercised

250

(107)

-

143

Balance, 30 June 2012

429,752

18,826

103,747

552,325

Balance, 1 Jan 2013

431,318

20,340

153,990

605,648

Net income for the period

-

-

55,703

55,703

Total comprehensive income

431,318

20,340

209,693

661,351

Shares issued

93,005

-

-

93,005

Share based payment

-

1,963

-

1,963

Options exercised

585

(257)

-

328

Balance, 30 June 2013

524,908

22,046

209,693

756,647

Consolidated Statement of Cash Flow

For the three and six months ended 30 June 2013 and 2012

(unaudited)

Three months ended 30 June

Six months ended 30 June

2013

US$'000

2012

US$'000

2013

US$'000

2012

US$'000

CASH PROVIDED BY (USED IN):

Operating activities

Profit Before Tax

69,097

21,721

71,377

35,505

Adjustments for:

Depletion, depreciation and amortisation

41,367

11,092

60,865

24,477

Exploration and evaluation expenses

132

4

444

79

Share based payment

366

204

661

339

Loan fee amortisation

592

416

1,184

494

Revaluation of financial instruments

(7,303)

(17,362)

3,762

(18,128)

Revaluation of contingent consideration

-

-

-

1,295

Movement in goodwill

(47,964)

-

(48,878)

-

Gain on disposal

-

(205)

-

(205)

Accretion

1,088

436

1,590

820

Bank interest & charges

3,296

-

4,455

-

Valiant acquisition fees

4,351

-

5,032

-

Cashflow from operations

65,022

16,306

100,492

44,676

Changes in inventory, debtors and creditors relating to operating activities

19,963

11,168

20,842

10,347

Net cash from operating activities

84,985

27,474

121,334

55,023

Investing activities

Acquisition of Valiant

(200,636)

-

(200,636)

-

Cash acquired on acquisition of Valiant

11,611

-

11,611

-

Valiant acquisition fees

(4,351)

-

(5,032)

-

Acquisition of Cook

-

-

(33,370)

-

Capital expenditure

(66,050)

(31,782)

(91,434)

(54,290)

Investment in associate

-

(18,337)

-

(18,337)

Loan to associate

-

(21,551)

-

(21,551)

Proceeds on disposal

-

44,878

-

44,878

Settlement of contingent consideration

-

(15,700)

-

(15,700)

Changes in debtors and creditors relating to investing activities

(56,880)

38,666

(44,441)

30,855

Net cash used in investing activities

(316,306)

(3,826)

(363,302)

(34,145)

Financing activities

Proceeds from issuance of shares

299

143

328

143

(Increase) / decrease in restricted cash

(3,226)

457

(3,226)

(3,710)

Derivatives

(1,680)

-

(9,627)

-

Loan repayment

(115,000)

-

(115,000)

-

Loan draw down

320,918

-

375,918

-

Bank interest & charges

(4,396)

-

(5,506)

-

Net cash from/used in financing activities

196,915

600

242,887

(3,567)

Currency translation differences relating to cash

(4,137)

(2,307)

(5,202)

(971)

Increase / (decrease) in cash and cash equiv.

(38,543)

21,941

(4,283)

16,340

Cash and cash equivalents, beginning of period

65,634

89,944

31,374

95,545

Cash and cash equivalents, end of period

27,091

111,885

27,091

111,885