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Interim Results - Replacement

27th Aug 2010 14:19

RNS Number : 7812R

Ithaca Energy Inc

27 August 2010

The following amendment has been made to the 'Interim Results' announcement released on 27/08/2010 at 13.00 under RNS No 7738R.

The table titled 'Consolidated Statements of Net and Comprehensive Income / (Loss)' has been inserted.

All other details remain unchanged.

The full amended text is shown below.

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

Ithaca Energy Inc.

Second Quarter 2010 Financial Results

Substantial increase in Net profit to $10.5 million and positive

Cash flow of $38.3 million

Half Yearly 2010 Financial Results

Net profit $15.9 million

Cash flow positive $42.2 million

SUMMARY OF KEY RESULTS

For the second quarter ended 30 June 2010

Financial

·; Net profit of US$10.5 million for the quarter ended June 30, 2010, resulting in net profit of US$15.9 million for the six months ended June 30, 2010

·; Positive cash flow from operating activities of US$38.3 million for the quarter ended June 30, 2010 ($6.2 million for quarter ended June 30, 2009) and positive cashflow of US$42.2 million for the six months ended June 30, 2010 (US$3.3 million positive cashflow for the six months ended June 30, 2009)

·; Cash balance as at June 30, 2010 of US$51.0 million and no drawn debt ($29.9 million as at 31 December 2009) (pre-equity raise)

·; Weighted average realized price for Q2 of US$73.98/barrel (weighted average realised price of $60.38/barrel for quarter ended June 30,2009)

·; On July 28, the Company closed an equity raise consisting of a Canadian bought deal and UK private placement, issuing 92.7 million common shares of Ithaca for aggregate gross proceeds of approximately US$150 million.

·; On July 12, the Company signed a borrowing facility agreement for up to US$140 million with Bank of Scotland Plc

Operational

·; The Company announced a significant increase in reserves post the success of the Stella well. Total Proved ("1P") reserves increased 30.6% from 15.99 million barrels of oil equivalent ("mmboe") to 20.88 mmboe and total Proved plus Probable ("2P") reserves increased 12.8% from 37.19 mmboe to 41.96 mmboe following an independent evaluation of the Company's petroleum and natural gas reserves by Sproule International Limited (www.sproule.com).

·; Combined production from Jacky and Beatrice averaged 10,217 barrels of oil per day ("bopd") gross (4,914 bopd net to Ithaca) over the three month period from April to June 2010 as measured at the Nigg storage facility. Production in the second quarter increased as a result of the Beatrice Field coming strongly back on line combined with the Jacky field performing above expectation.

·; Coiled tubing work commenced on the Beatrice Alpha platform to undertake preparatory 'clean up' work on five production wells prior to mobilization of a Hydraulic Workover Unit ("HWU") to the platform in early July 2010.

·; On August 4, the Company entered into an agreement to acquire certain UK North Sea gas interests from GDF SUEZ E&P UK Ltd for a cash consideration of £11.25 million (approximately US$16.9 million). This acquisition includes producing assets and further development potential. Completion will be in the fourth quarter, with effective date of January 1, 2010

·; On August 5, the Company announced that a revised corporate presentation had been released on its corporate website. The presentation states that production for July 2010 from the Jacky and Beatrice fields averaged 10,884 barrels of oil per day ("bopd") gross (5,225 bopd net to Ithaca), as measured at the Nigg storage facility. In addition, the presentation gives details of the workover operations currently ongoing using a HWU which was installed on the Beatrice Alpha platform in July. The results and impact of the first of five workover operations will be reported in September.

Iain McKendrick, CEO, commented,

"Our strong second quarter / half yearly results represent another major step forward for the Company, in particular the doubling of net profits from the first quarter. Cash flows from operations have been very healthy, despite lower commodity prices during the second quarter. The Company's projects are moving ahead at pace. Athena FDP and the finalization of all services contracting agreements are expected shortly. In the Greater Stella Area, export route surveys have already been completed and a full suite of pre Front End Engineering and Design studies is ongoing. During the fourth quarter, the Company aims to complete the acquisition of various interests from GDF SUEZ E&P UK Ltd and we continue to be active in the asset acquisition market. Early in the fourth quarter the Company will announce an ambitious 2011 work programme across all its assets."

Full details on the above are provided in the Consolidated Financial Statements and Management's Discussion and Analysis for the second quarter ended June 30, 2010, which will be filed with the securities regulatory authorities in Canada. These documents will be available on the System for Electronic Document Analysis and Retrieval at www.sedar.com (together with a copy of this announcement) and on the Company's website:

http://www.ithacaenergy.com/uploads/IthacaPressReleaseFull100827.pdf

Enquiries:

Ithaca Energy:
Iain McKendrick, CEO	[email protected]	+44 (0) 1224 650 261
Graham Forbes, CFO	[email protected]	+44 (0) 1224 652 151
Nick Muir, CXO	[email protected]	+44 (0) 1224 650 267


Pelham Bell Pottinger Public Relations:
Philip Dennis	[email protected]	+44 (0) 207 861 3894
Elena Dobson	[email protected]	+44 (0) 207 861 3147

Cenkos Securities plc:
Jon Fitzpatrick	[email protected]	+44 (0) 207 397 8900
Ken Fleming	[email protected]	+44 (0) 131 220 6939

The calculation of barrels of oil equivalent ("boe") is based on a conversion rate of six thousand cubic feet of natural gas ("mcf") to one barrel of crude oil ("bbl"). Boes 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.

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

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

Forward-looking statements

Some of the statements in this announcement are forward-looking. Forward-looking statements include statements regarding the intent, belief and current expectations of Ithaca Energy Inc. or its officers with respect to various matters. When used in this announcement, the words "expects," "believes," "anticipate," "plans," "may," "will," "should", "scheduled", "targeted", "estimated" and similar expressions, and the negatives thereof, whether used in connection with the estimated production levels, anticipated time of first oil, oil in place, hydrocarbon composition or otherwise, are intended to identify forward-looking statements. Such statements are not promises or guarantees, and are subject to risks and uncertainties that could cause actual outcome to differ materially from those suggested by any such statements. These forward-looking statements speak only as of the date of this announcement. Ithaca Energy Inc. expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based except as required by applicable securities laws.

Neither TSX Venture nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

-ENDS-

Consolidated Balance Sheets
(unaudited)		June 30,	December 31,
		2010	2009
		US$	US$
ASSETS

Current assets
	Cash and cash equivalents	51,010,143	29,886,359
	Accounts receivable	79,077,715	67,166,377
	Restricted cash (note 3)	-	5,224,308
	Deposits, prepaid expenses and other	505,571	351,041
	Foreign exchange forward contract (note 11)	-	685,355
		130,593,429	103,313,440

Restricted cash (note 3)		334,935	351,627
Property, plant and equipment (net) (note 4)		208,570,016	205,474,732

		339,498,380	309,139,799

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
	Accounts payable and accrued liabilities	56,633,148	43,612,899
	Commodity hedge (note 11)	-	396,780
	Foreign exchange forward contract (note 11)	1,473,871	-

Long term liability on Beatrice acquisition (note 5)		2,538,759	2,718,027
Asset retirement obligations (note 6)		6,097,904	7,955,967
		66,743,683	54,683,673

Shareholders' equity
	Share capital (note 7)	277,306,689	277,075,488
	Contributed surplus (note 8)	10,012,039	7,811,620
	Deficit	(14,564,031)	(30,430,982)
		272,754,697	254,456,126

		339,498,380	309,139,799

Commitments (note 10) and contingent liability (note 17)
"Approved on behalf of the Board"

"John P. Summers"
Director


"Jack Lee"
Director

Consolidated Statements of Net and Comprehensive Income / (Loss)
(unaudited)
		3 months ended June 30,		6 months ended June 30,
		2010	2009	2010	2009
			*		*
		US$	US$	US$	US$
REVENUES
	Oil sales	33,094,072	28,280,275	63,195,604	31,056,119
	Other income	1,035,409	1,476,638	1,700,545	2,446,233
	Interest income	3,295	146,305	5,497	238,254
		34,132,776	29,903,218	64,901,646	33,740,606

COSTS AND EXPENSES
	General and administrative	740,408	1,918,315	1,516,604	4,562,290
	Operating	9,460,016	11,724,320	18,149,394	23,934,953
	Depletion, depreciation and accretion (note 4)	13,103,774	17,585,049	24,351,559	20,053,029
	Loss / (gain) on foreign exchange	362,184	(890,935)	1,938,259	(1,117,481)
	Revaluation of long term liability (note 5)	5,136	483,818	(179,268)	483,818
	Unrealized loss / (gain) on derivatives (note 11)	(229,962)	(5,602,293)	1,762,447	(7,043,527)
	Realized loss on derivatives (note 11)	811,500	-	976,620	-
	Stock based compensation (note 7(c))	(640,297)	332,189	511,153	769,944
	Interest and bank charges	3,917	572,826	7,927	584,361
		23,616,676	26,123,289	49,034,694	42,227,387



Net and comprehensive income / (loss)		10,516,100	3,779,929	15,866,951	(8,486,781)
Net income / (loss) and comprehensive income / (loss) per share (basic)		0.06	0.02	0.10	(0.05)

Net income / (loss) and comprehensive income / (loss) per share (diluted)		0.06	0.02	0.09	(0.05)

* Reclassified, see note 18

Consolidated Statements of Shareholders' Equity

(all amounts are US$)

(unaudited)

	Share Capital	Contributed Surplus	Deficit	Total
Balance, Jan 1 2009	277,029,766	5,126,285	(38,287,426)	243,868,625
Stock based compensation	-	2,707,233	-	2,707,233
Options exercised	45,722	(21,898)	-	23,824
Net income for the year	-	-	7,856,444	7,856,444

Balance, Dec 31 2009	277,075,488	7,811,620	(30,430,982)	254,456,126

Balance, Jan 1 2010	277,075,488	7,811,620	(30,430,982)	254,456,126
Stock based compensation	-	2,311,153	-	2,311,153

Options exercised	231,201	(110,734)	-	120,467
Net income for the period	-	-	15,866,951	15,866,951

Balance, June 30 2010	277,306,689	10,012,039	(14,564,031)	272,754,697

Consolidated Statements of Cash Flows
(unaudited)
			3 months ending June 30,		6 months ending June 30,
			2010	2009	2010	2009
				*		*
			US$	US$	US$	US$
CASH PROVIDED BY (USED IN):

OPERATING ACTIVITIES:
	Net profit / (loss)		10,516,100	3,779,929	15,866,951	(8,486,781)
	Items not affecting cash
		Depletion, depreciation and accretion	13,103,774	17,585,049	24,351,559	20,053,029
		Unrealised loss / (gain) on derivatives	(229,962)	(5,602,293)	1,762,447	(7,043,527)
		Revaluation of long term liability	5,136	483,818	(179,268)	483,818
		Stock based compensation	(640,297)	332,189	511,153	769,944
			22,754,751	16,578,692	42,312,842	5,776,483
Changes in non-cash working capital relating to operating activities			15,587,058	(10,387,387)	(130,547)	(2,440,357)
			38,341,809	6,191,305	42,182,294	3,336,126

FINANCING ACTIVITIES:
	Proceeds from issuance of shares		68,957	-	120,468	-
	Restricted cash		(400)	-	5,241,000	-
	Dyas loan			5,141	-	6,905,500
			68,557	5,141	5,361,468	6,905,500

INVESTING ACTIVITIES:
	Oil and natural gas properties		(13,794,337)	(7,742,342)	(28,360,392)	(17,355,640)
	Office furniture and equipment		(45,589)	(12,377)	(144,511)	(14,660)
			(13,839,926)	(7,754,719)	(28,504,903)	(17,370,300)
Changes in non-cash working capital relating to investing activities			6,384,817	(9,600,967)	2,528,947	(17,612,908)
			(7,455,109)	(17,355,686)	(25,975,956)	(34,983,208)

Gain on foreign exchange			(29,212)	610,239	(444,022)	232,376

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS			30,926,044	(10,549,001)	21,123,784	(24,509,206)
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents, beginning of period			20,084,099	12,983,597	29,886,359	26,943,802

Cash and cash equivalents, end of period			51,010,143	2,434,596	51,010,143	2,434,596

* Reclassified, see note 18

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Unaudited three and six months ended June 30, 2010

All figures are in US Dollars, except where otherwise stated.

1. NATURE OF OPERATIONS

Ithaca Energy Inc. (the "Corporation" or "Ithaca"), incorporated in Alberta, Canada on April 27, 2004, is a publicly traded company involved in the exploration, development and production of oil and gas in the North Sea. The Corporation's shares are listed on the TSX Venture Exchange in Canada and the London Stock Exchange's Alternative Investment Market in the United Kingdom under the symbol "IAE". Ithaca has a wholly-owned subsidiary Ithaca Energy (UK) Limited ("Ithaca UK"), incorporated in Scotland.

2. SIGNIFICANT ACCOUNTING POLICIES

These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and follow the same accounting policies and methods of computation as, and should be read in conjunction with, the most recent annual financial statements. Certain information and disclosures normally required to be included in notes to the annual consolidated financial statements have been condensed or omitted.

Use of Estimates

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. The recoverability of amounts shown for oil and natural gas properties is dependent upon the determination of economically recoverable reserves. The amounts recorded for depreciation, depletion, asset retirement obligation, long-term liability, future income taxes, accruals, derivatives, and stock based compensation are based upon estimates, as are assumptions used in the ceiling test. Actual results could differ from those estimates.

3 RESTRICTED CASH

Restricted cash of $334,935 is held by the Bank of Scotland as cash security for a Bank Guarantee that Ithaca Energy (UK) Limited provided to the Crown Estate when it was granted Field Development Plan approval for the Jacky Field.

$5,241,400 of restricted cash held by the Bank of Scotland as cash security for the 2010 foreign exchange forward contract was released in January 2010.

3. PROPERTY, PLANT AND EQUIPMENT

	June 30,	December 31,
	2010	2009
	US$	US$

Oil and natural gas properties	286,323,006	259,285,146
Less accumulated depletion	(78,244,775)	(54,327,340)
	208,078,231	204,957,806

Office furniture and equipment	1,418,449	1,273,938
Less accumulated depreciation and amortization	(926,664)	(757,012)
	491,785	516,926

Total property, plant and equipment	208,570,016	205,474,732

The Corporation acquired the producing Beatrice facilities on November 10, 2008 and has therefore recognised depletion charges since that date. The depletion charge in the quarter and the 6 months ended June 30, 2010 was $12.9 million and $23.9 million respectively (Q2 2009: $17.2 million). As at June 30, 2010, oil and natural gas properties included $192.6 million (Dec 31, 2009: $189.5 million) relating to proved properties and $15.5 million (Dec 31, 2009: $15.5 million) relating to unproved properties. During the quarter ended June 30, 2010, the Corporation capitalized $1.6 million of overhead directly related to exploration, appraisal and development activities and $2.9 million in the 6 months ended June 30, 2010 (Q2 2009: $2.1 million). The Corporation did not capitalize any interest (Q2 2009: $0.9 million) in the quarter or 6 months ended June 30, 2010.

Disposal

The Corporation announced on July 29, 2009 that it had completed a transaction with Dyas UK Limited ("Dyas"), whereby Dyas purchased an interest in certain assets of the Corporation for $101.6 million and the Corporation agreed to repay the loans of $61.2 million and £5 million ($8.2 million) from Dyas ("Dyas Transaction"). Cash of $32.2 million was paid immediately to Ithaca and a further $8.4 million was paid upon the outstanding transfer of an interest in Stella.

The majority of the proceeds were credited to Property, Plant and Equipment, with no gain or loss on disposal.

Acquisition

On October 28, 2009, the Corporation signed an agreement for the acquisition from Maersk Oil North Sea UK Limited and Maersk Oil Exploration UK Limited of additional interest in the Stella and Harrier discoveries and the Hurricane discovery. Ithaca paid $10 million in consideration for this purchase and is committed to pay a further $3 million at Field Development approval and $5 million at first oil.

On the same date Ithaca entered into a "farm out" agreement with Challenger Minerals (North Sea) Limited ("CMI") whereby CMI committed to pay 27% of gross Stella appraisal well costs in exchange for an option to acquire 18% equity interest in the Stella and Harrier discoveries prior to 1st August 2010, thereby carrying a part of Ithaca's share of drilling costs. CMI will also carry Ithaca on a further Stella or Harrier development well for up to £2 million ($3.2 million) or 9%, whichever is lower. Following the "farm out" the Corporation's final interest in the Stella and Harrier discoveries will be 50.33% and will remain at 100% in the Hurricane discovery.

Subsequent to the quarter ended 30 June 2010, CMI gave written notice of its exercise of the option to take the 18% equity interest. Completion is anticipated in 3Q 2010.

4. LONG TERM LIABILITY ON BEATRICE ACQUISITION

	June 30,	December 31,
	2010	2009
	US$	US$
Balance, beginning of the period	2,718,027	4,137,413
Addition	-	-
Disposal	-	(1,536,045)
Revaluation in the period	(179,268)	116,659
Balance, end of the period	2,538,759	2,718,027

On completion of the acquisition of the Beatrice Facilities on November 10, 2008 there were 75,000 barrels of oil in an oil storage tank at the Nigg Terminal. This volume of oil is required to be in the storage tank when the Beatrice Facilities are re-transferred. This volume of oil is valued at the price on the forward oil price curve at the expected date of re-transfer and discounted. The disposal in 2009 relates to the Dyas Transaction referred to in note 4. The liability is subject to revaluation at each financial period end. The expected date of re-transfer is likely to be more than three years.

6. ASSET RETIREMENT OBLIGATIONS

The total future asset retirement obligation 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 estimates its total undiscounted asset retirement obligations to be $11,872,174 as at June 30, 2010. The fair value of these obligations is estimated to be $6,097,904. 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. The revision to estimates was due to an update of reserve life contained in the updated reserves report to 10.4 years. The liabilities disposed of in 2009 relate to the Dyas transactions.

The following table provides a reconciliation of the Corporation's total discounted asset retirement obligations:

	June 30, 2010	December 31, 2009
	US$	US$
Balance, beginning of period	7,955,967	7,407,290
Additions	-	5,530,301
Accretion	264,469	808,140
Revision to estimates	(2,122,532)	(362,722)
Liabilities disposed of	-	(5,427,042)
Balance, end of period	6,097,904	7,955,967

7. SHARE CAPITAL

(a) Issued

The issued share capital is as follows:

Issued	Number of common shares	Amount
	Number of common shares	US$
Balance December 31, 2008	162,261,975	277,029,766
Issued for cash - options exercised	100,000	23,824
Transfer from Contributed Surplus on options exercised		21,898
Balance December 31, 2009	162,361,975	277,075,488
Issued for cash - options exercised	484,998	120,467
Transfer from Contributed Surplus on options exercised	-	110,734
Balance June 30, 2010	162,846,973	277,306,689

(b) Stock Options

In the quarter ended March 31, 2010, the Corporation's Board of Directors granted 4,550,000 options at a weighted average exercise price of $1.53 (C$1.55) to employees and directors pursuant to the terms of the Corporation's stock-based compensation plan. The Corporation's stock options and exercise prices are denominated in Canadian Dollars when granted. As at June 30, 2010, 15,032,877 stock options to purchase common shares were outstanding, having an exercise price range of $0.23 to $3.43 (C$0.25 to C$3.65) per share and a vesting period of up to 3 years.

Changes to the Corporation's stock options are summarized as follows:

	June 30, 2010		December 31, 2009
	Number of	Wt. Avg.	Number of	Wt. Avg.
	Options	Exercise	Options	Exercise
		Price		Price
		US$		US$
Balance, beginning of period	11,042,875	$ 1.45	10,694,500	$ 1.92
Granted	4,550,000	$ 1.53	3,876,875	$ 0.83
Forfeited / expired	(75,000)	$ 1.46	(3,428,500)	$ 2.18
Exercised	(484,998)	$ 0.23	(100,000)	$ 0.24
Options outstanding, end of period	15,032,877	$ 1.49	11,042,875	$ 1.48

The following is a summary of stock options outstanding as June 30, 2010.

Options Outstanding
Range of Exercise	Number of	Wt. Avg.	Wt. Avg.
Price	Options	Life	Exercise
		(Years)	Price
			US$

$3.43 (C$3.65)	2,435,000	1.65	$3.43

$2.35-$2.82 (C$2.51-C$3.00)	1,285,000	0.93	$2.43

$1.48-$1.69 (C$1.54-C$1.80)	4,925,000	3.45	$1.48

$0.23-$0.82 (C$0.25-C$0.87)	6,387,877	3.28	$0.58

	15,032,877	2.86	$1.49

The following is a summary of stock options exercisable as at June 30, 2010.

Options Exercisable
Range of Exercise	Number of	Wt. Avg.	Wt. Avg.
Price	Options	Life	Exercise
		(Years)	Price
			US$

$3.43 (C$3.65)	1,623,334	1.65	$3.43

$2.35-$2.82 (C$2.51-C$3.00)	1,218,334	0.91	$2.41

$1.48-$1.69 (C$1.54-C$1.80)	149,999	2.18	$1.69

$0.23-$0.82 (C$0.25-C$0.87)	730,336	3.44	$0.23

	3,722,003	1.78	$2.40

Options granted are accounted for using the fair value method. The compensation cost during the quarter ended June 30, 2010 for total stock options granted was $1,159,703 and during the 6 months ended June 30, 2010 was $2,311,153 (December 31, 2009; $2,707,233). The income statement for the quarter ended 30 June 2010 shows a credit of $0.6 million for stock based compensation. This relates to a year-to-date reclassification within costs in Q2 2010 and now shows a charge to the Corporation of $0.5m for the six months ended 30 June, 2010.The fair value of each stock option granted was estimated at the date of grant, using the Black-Scholes option pricing model with the following assumptions:

	For the 6 months ended June 30, 2010	For the year ended December 31, 2009
Risk free interest rate	1.74%	2.13%
Expected dividend yield	0%	0%
Expected stock volatility	102%	94%
Expected life of options	2.74 years	4 years
Weighted Average Fair Value	$0.89	$0.83

(d) Gemini Agreement

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

8. CONTRIBUTED SURPLUS

	June 30, 2010	December 31, 2009
	US$	US$
Balance, beginning of period	7,811,620	5,126,285
Stock based compensation cost	2,311,153	2,707,233
Transfer to share capital on exercise of options	(110,734)	(21,898)
Balance, end of period	10,012,039	7,811,620

9. PER SHARE AMOUNTS

The following reflects the share data used in the basic and diluted net income per share computations:

	3 months ended June 30,		6 months ended June 30,
	2010	2009	2010	2009
Weighted average number of common shares for basic earnings per share	162,783,511	162,261,975	162,670,205	162,261,975
Weighted average number of common shares adjusted for the effect of dilution	166,456,264	172,016,475	166,342,957	172,404,320

10. COMMITMENTS

As at June 30, 2010, the Corporation had the following financial commitments:

Year ended	2010	2011	2012	2013	2014	Subsequent to 2014
	US$	US$	US$	US$	US$	US$
Office lease	120,568	241,136	241,136	241,136	241,136	783,692
Exploration license fees	273,524	844,916	1,150,800	1,468,316	-	-
Letter of Intent obligations	751,860	-	-	-	-	-
Total	1,145,952	1,086,052	1,391,936	1,709,452	241,136	783,692

11. FINANCIAL INSTRUMENTS

To estimate fair value of financial instruments, the Corporation uses quoted market prices when available, or industry accepted third-party models and valuation methodologies that utilize observable market data. In addition to market information, the company incorporates transaction specific details that market participants would utilize in a fair value measurement, including the impact of non-performance risk. The company characterizes inputs used in determining fair value using a hierarchy that prioritizes inputs depending on the degree to which they are observable. However, these fair value estimates may not necessarily be indicative of the amounts that could be realized or settled in a current market transaction. The three levels of the fair value hierarchy are as follows:

• Level 1 - inputs represent quoted prices in active markets for identical assets or liabilities (for example, exchange-traded commodity derivatives). Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

• Level 2 - inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, market interest rates, and volatility factors, which can be observed or corroborated in the marketplace. The company obtains information from sources such as the New York Mercantile Exchange and independent price publications.

• Level 3 - inputs that are less observable, unavailable or where the observable data does not support the majority of the instrument's fair value.

In forming estimates, the company utilizes the most observable inputs available for valuation purposes. If a fair value measurement reflects inputs of different levels within the hierarchy, the measurement is categorized based upon the lowest level of input that is significant to the fair value measurement. The valuation of over-the-counter financial swaps and collars is based on similar transactions observable in active markets or industry standard models that primarily rely on market observable inputs. Substantially all of the assumptions for industry standard models are observable in active markets throughout the full term of the instrument. These are categorized as Level 2.

The following table presents the Corporation's material financial instruments measured at fair value for each hierarchy level as of June 30, 2010:

	Level 1	Level 2	Level 3	Total Fair Value
	US$	US$	US$	US$
Long term liability on Beatrice acquisition	-	-	2,538,759	2,538,759
Foreign exchange forward contract	-	(1,473,871)	-	(1,473,871)
Total	-	(1,473,871)	-	(1,473,871)

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

	6 months ended June 30,
	2010	2009
	US$	US$
Unrealized (loss) on foreign exchange forward contract	(2,159,227)	(7,043,527)
Realized (loss) on foreign exchange forward contract	(1,062,555)	-
Unrealized gain on commodity hedges	396,780	-
Realized gain on commodity hedges	85,935	-
Total (loss) / gain on derivatives	(2,739,067)	(7,043,527)

The Corporation has identified that it is exposed principally to these areas of market risk.

i) Commodity Risk

Commodity price risk related to crude oil prices is the Corporation's most significant market risk exposure. Crude oil prices and quality differentials are influenced by worldwide factors such as OPEC actions, political events and supply and demand fundamentals. To a lesser extent the Corporation is also exposed to natural gas price movements as it holds undeveloped gas discoveries in its portfolio. Natural gas prices are generally influenced by oil prices and local market conditions. The Corporation's expenditures are subject to the effects of inflation, and prices received for the product sold are not readily adjustable to cover any increase in expenses from inflation. The Corporation may periodically use different types of derivative instruments to manage its exposure to price volatility, thus mitigating fluctuations in commodity-related cash flows. If the oil price had been lower by $5 per barrel in 2010 then the profit for the quarter would have been lower by $4,119,393.

In November, 2009, the Corporation entered into a forward swap for 51,000 barrels per month over November, December, January and February production fixing the price at $77/barrel. This forward swap resulted in a realized gain of $85,935 in the six months ended June 30, 2010.

ii) Interest Risk

As a result of the repayment of all security held by Dyas referred to in note 4, the Corporation's exposure to the risk of changes in market interest rates is now negligible. If the Corporation utilizes floating rate debt to finance its developments and operations in the future, the Corporation may be exposed to interest rate risk to the extent that LIBOR may fluctuate. The Corporation will evaluate its annual forward cash flow requirements on a rolling monthly basis.

iii) Foreign Exchange Rate Risk

The Corporation is exposed to foreign exchange risks to the extent it transacts in various currencies, while measuring and reporting its results in US Dollars. Since time passes between the recording of a receivable or payable transaction and its collection or payment, the Corporation is exposed to gains or losses on non USD amounts and on balance sheet translation of monetary accounts denominated in non USD amounts upon spot rate fluctuations from quarter to quarter.

On March 11, 2009, the Corporation entered into a "Window Forward Plus" contract with the Bank of Scotland to hedge circa 90% of the Corporation's known, at that time, future US Dollar to British Pound Sterling exchange rate exposure. The contract ensured that the Corporation, which incurs a substantial amount of its operating expenditure in British Pounds Sterling ("£"), was able to lock in a rate of no worse than USD1.40/£1.00 for a series of foreign exchange transactions throughout the year and yet continues to benefit from any additional strengthening of the US Dollar down to USD1.29/£1.00 (the "Trigger rate"). Any strengthening of the USD/£ rate beyond the Trigger rate during any of the periods or "windows" between the transaction dates led to a rate of USD1.40/£1.00 being applied to that individual transaction. The contract, which expired December 31, 2009, covered $49 million equivalent of British Pounds Sterling expenditure.

On October 12, 2009, the Corporation entered in to a further Window Forward Plus contract with the Bank of Scotland to hedge its forecast British Pounds Sterling 2010 operating costs, including general and administrative expenses. The hedge amounts to $4 million per month (total $48 million) at a US$/£ rate of no worse than USD1.60/1.0 and a Trigger rate of USD1.4975/£1.00. A realized loss of $811,500 has been recognized on the contract for the quarter ended June 30, 2010. The projected weakening of the US Dollar for the remainder of the contract has resulted in an unrealized gain of $229,962 for the quarter ended June 30, 2010. If the US$ had increased by $1 (USD2.49/£1.00) in the quarter ended June 30, 2010 then the profit for the quarter would have been lower by $7.4 million, but due to hedging, this exposure would have been limited to $0.7 million ($14.6 million lower profits and $0.7 million exposure for the 6 months ended June 30, 2010).

iv) Credit Risk

The Corporation's accounts receivable with customers in the oil and gas industry are subject to normal industry credit risks and are unsecured. It should be noted that the Corporation has entered in to a five year marketing agreement with BP Oil International Limited to sell all of its North Sea oil production.

The Corporation assesses partners' credit worthiness before entering into farm-in or joint venture agreements. In the past, the Corporation has not experienced credit loss in the collection of accounts receivable. As the Corporation's exploration, drilling and development activities expand with existing and new joint venture partners, the Corporation will assess and continuously update its management of associated credit risk and related procedures.

The Corporation regularly monitors all customer receivable balances outstanding in excess of 90 days. As at June 30, 2010 over 95% of accounts receivables are current, being defined as less than 90 days. The Corporation has an allowance for doubtful accounts as at June 30, 2010 of $159,280 (June 30, 2009 $Nil).

The Corporation may be exposed to certain losses in the event that counterparties to derivative financial instruments are unable to meet the terms of the contracts. The company's exposure is limited to those counterparties holding derivative contracts with positive fair values at the reporting date. At June 30, 2010, the Corporation's has no exposure, due to the unrealized loss position (December 31, 2009: $685,355).

The Corporation also has credit risk arising from cash and cash equivalents held with banks and financial institutions. The maximum credit exposure associated with financial assets is the carrying values.

v) Liquidity Risk

Liquidity risk includes the risk that as a result of its operational liquidity requirements the Corporation will not have sufficient funds to settle a transaction on the due date. The Corporation manages liquidity risk by maintaining adequate cash reserves, banking facilities, and by considering medium and future requirements by continuously monitoring forecast and actual cash flows. The Corporation considers the maturity profiles of its financial assets and liabilities. As at June 30, 2010, substantially all accounts payable are current.

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

	Within 1 year	1 to 5 years
	US$	US$
Accounts payable	56,633,148	-
Foreign exchange forward contract	1,473,871	-
Long term liability	-	2,538,759
Total	58,107,019	2,538,759

12. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES

Financial instruments of the Company consist mainly of cash and cash equivalents, receivables, payables, loans and financial derivative contracts, all of which are included in these financial statements. At June 30, 2010, the classification of financial instruments and the carrying amounts reported on the balance sheet and their estimated fair values are as follows:

	June 30, 2010		December 31, 2009
	US$		US$
Classification	Carrying Amount	Fair Value	Carrying Amount	Fair Value
Cash and cash equivalents (Held for trading)	51,010,143	51,010,143	29,886,359	29,886,359
Restricted cash (Held for trading)	334,935	334,935	5,575,935	5,575,935
Foreign exchange forward contract (Held for trading)	-	-	685,355	685,355
Accounts receivable - current (Loans and Receivables)	79,077,715	79,077,715	67,166,377	67,166,377

Commodity hedge (Held for trading)	-	-	396,780	396,780
Foreign exchange forward contract (Held for trading)	1,473,871	1,473,871	-	-
Long Term Liability (Held for trading)	2,538,759	2,538,759	2,718,027	2,718,027
Accounts payable (Other financial liabilities)	56,633,148	56,633,148	43,612,899	43,612,899

Total	191,068,571	191,068,571	150,041,732	150,041,732

13. SUPPLEMENTAL INFORMATION

	3 months ended June 30,		6 months ended June 30,
	2010	2009	2010	2009
	US$	US$	US$	US$
Interest paid during the period	-	980	-	1,354,075
Income taxes paid during the period	-	-	33,971	124,023
Total	-	980	33,971	1,478,096

14. CAPITAL DISCLOSURE

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.

In the definition of capital, the Corporation includes shareholders' equity, and working capital. Shareholders' equity includes share capital, contributed surplus, retained earnings or deficit and other comprehensive income.

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 Board sets guidelines for the management of the Corporation's capital. The Corporation monitors its capital structure using the debt-to-equity ratio and other benchmark measures at the consolidated group level.

	June 30, 2010	December 31, 2009
	US$	US$
Debt	-	-
Equity	272,754,697	254,456,126

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

On July 29, 2009 all debt was repaid and the Corporation is debt free with all security released.

There have been no significant changes from the previous year end to management's objectives, policies and processes to manage capital or to the components defined as capital.

Refer to note 16 for changes to the capital structure that occurred after the quarter end.

15. RELATED PARTY TRANSACTIONS

A Director of the Corporation is a partner of Burstall Winger LLP who acts as counsel for the Corporation. The amount of fees paid to Burstall Winger LLP in the quarter ended June 30, 2010 was $103,606 (June 30, 2009 - $46,871). The balance outstanding at June 30, 2010 was $18,913 (June 30, 2009 - $Nil). These amounts have been recorded at the exchange amount.

16. SUBSEQUENT EVENTS

On July 12, the Corporation signed and completed a Senior Secured Borrowing Base Facility agreement for up to US$140 million with the Bank of Scotland Plc. The loan term is up to five years and in accordance with normal industry borrowing base facilities. No funds are currently drawn down under the facility.

On July 28, the Corporation closed a circa USD$150 million financing by way of a Canadian bought deal and UK private placement. This resulted in 47.6 million common shares of the Corporation being issued at a price of CAD$1.70 per common share and 45.1 million common shares at a price of £1.07 per common share (the "Private Placement"). The combination of the proceeds from the Bought Deal Offering and Private Placement, together with debt made available from the Bank of Scotland facility and a portion of anticipated cash flows, means that all of the Corporation's current projects are anticipated to be fully funded through to first production.

On August 4, the Corporation entered into an agreement to acquire certain UK North Sea gas interests from GDF SUEZ E&P UK Ltd for a cash consideration of £11.25 million. The effective date of the acquisition is January 1, 2010. Completion of the acquisition is expected in 3Q 2010.

17. CONTINGENT LIABILITY

The Corporation is currently undergoing Joint Venture audits by partners. Any liability arising out of the audits cannot be reasonably determined at this time.

18. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform with the current year's financial statement presentation.

ITHACA ENERGY INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE QUARTER ENDED JUNE 30, 2010

The following is management's discussion and analysis ("MD&A") of the operating and financial results of Ithaca Energy Inc. (the "Corporation" or "Ithaca" or the "Company") for the three months and six months ended June 30, 2010. The information is provided as of August 27, 2010. The unaudited second quarter 2010 results have been compared to the results of the comparative period in 2009. This discussion and analysis should be read in conjunction with the Corporation's unaudited consolidated financial statements as at June 30, 2010 and 2009 and for each of the three and six month periods then ended and with the Corporation's audited consolidated financial statements as at December 31, 2009 together with the accompanying notes, MD&A and Annual Information Form ("AIF") for the 2009 fiscal year. These documents and additional information about Ithaca are available on SEDAR at www.sedar.com.

Certain statements contained in this MD&A, including estimates of reserves, estimates of future cash flows and estimates of future production as well as other statements about future events or anticipated results, are forward-looking statements. The forward-looking statements contained herein are based on assumptions and are subject to known and unknown risks, uncertainties and other factors. Should the underlying assumptions prove incorrect or should one or more of these risks, uncertainties or factors materialize, actual results may vary significantly from those expected. See "Forward-Looking Information", below.

All financial data contained herein is presented in accordance with Canadian generally accepted accounting principles ("GAAP") and is expressed in United States dollars ("$"), unless otherwise stated.

BUSINESS OF THE CORPORATION

Ithaca is an oil and gas exploration, development and production company active in the United Kingdom's Continental Shelf ("UKCS"). The goal of Ithaca, in the near term, is to maximize production and achieve early production from the development of existing discoveries on properties held by Ithaca, to originate and participate in exploration and appraisal on properties held by Ithaca, when capital permits, and to consider other opportunities for growth as they are identified from time to time by Ithaca.

The Corporation's common shares are listed for trading on the TSX Venture Exchange and the Alternative Investment Market of the London Stock Exchange under the symbol "IAE".

NON-GAAP MEASURES

'Operating costs per barrel' referred to in this MD&A are not prescribed by Canadian generally accepted accounting principles (GAAP). This non-GAAP financial measure does not have any standardized meaning and therefore is unlikely to be comparable to similar measures presented by other companies. Ithaca includes operating costs per barrel data because investors may use this information to analyze operating performance. The additional information should not be considered in isolation or as a substitute for measures performance prepared in accordance with GAAP. See "Results of Operations" section for details.

BOE PRESENTATION

HIGHLIGHTS SECOND QUARTER 2010

Ithaca achieved the following highlights during the second three months of 2010.

Financial

·; Net profit for the quarter was $10.5 million (profit of $3.8 million for the quarter ended June 30, 2009) driven by strong production from Jacky, Beatrice Alpha and Beatrice Bravo, a reduction in operating costs, and a lower unit depletion cost following proven reserve revaluations (DD&A rate per barrel has decreased from $37/bbl to $29/bbl).

·; Weighted average realized price for the quarter ended June 30, 2010 was $73.98/barrel. This compares to a weighted average price of $60.38/barrel for second quarter 2009.

·; The Corporation recorded its fifth consecutive quarter of positive cash flow from operating activities amounting to $38.3 million, ($6.2 million inflow in the comparative 2009 quarter). The variance between periods arose from a significant increase in the commodity price, lower operating and G&A costs, combined with improved working capital management.

·; Cash balance as at June 30, 2010 of $51.0 million and no drawn debt ($29.9 million as at 31 December 2009).

·; In the three months to June 30, 2010, total fixed assets decreased $0.5 million to $208.6 million ($209.1 million as at March 31, 2010), comprising $13.9 million of capital expenditure, $0.8 million of capitalized stock based compensation, offset by $13.0 million of depletion and depreciation for the quarter and a $2.2 million decrease to the asset retirement obligation asset caused by a revision to abandonment estimates.

·; On April 22, the Corporation mandated Bank of Scotland Plc ("BOS"), part of Lloyds Banking Group, as Lead Arranger for the provision of a US$140 million Senior Secured Borrowing Base Facility ("the Facility") to principally fund the development of the recently appraised Stella field and the satellite discoveries Harrier and Hurricane and/or fund future potential acquisitions of production properties in the North Sea. This facility was subsequently signed and completed on July, 12 (see 'Highlights Subsequent to Quarter End' below).

Operational

·; Combined production from Jacky and Beatrice averaged 10,217 barrels of oil per day ("bopd") gross (4,914 bopd net to Ithaca) over the three month period from April to June 2010 as measured at the Nigg storage facility. Production in the second quarter has increased as a result of the Beatrice Field coming strongly back on line after an outage during the first quarter combined with the Jacky field performing above expectation.

·; On April 15, Ithaca announced that the Stella field appraisal well (30/6a-8) had proved the presence of significant additional volumes of hydrocarbon and excellent quality reservoir. A successful Drill Stem Test was performed providing critical information allowing development planning to commence. The total measured hydrocarbon column height was shown to be in excess of 820 feet and the well confirmed hydrocarbons more than 500 feet lower than in any previous wells. As planned, a sidetrack well (30/6a-8Z) was subsequently drilled and confirmed a fully hydrocarbon-saturated reservoir interval in the Andrew sandstone. Successful sampling and pressure tests also provided essential fluid composition information to appropriately size and plan the development of the Stella field. All objectives were fully met by the drilling programme.

·; On May 1, coiled tubing work commenced on the Beatrice Alpha platform to undertake preparatory 'clean up' work on five production wells. A Hydraulic Workover Unit ("HWU") was mobilized to the platform in early July 2010. The HWU is undertaking the replacement of Electric Submersible Pumps in four production wells and replacement of tubulars in one water injection well as part of the Beatrice Complex production enhancement program.

·; On June 9, the Company announced a significant increase in reserves post the success of the recent Stella well. Total Proved ("1P") reserves increased 30.6% from 15.99 million barrels of oil equivalent ("mmboe") to 20.88 mmboe and total Proved plus Probable ("2P") reserves increased 12.8% from 37.19 mmboe to 41.96 mmboe.

Corporate

·; On May 4, the Company announced the appointment of Mr. Ron Brenneman, formerly Chief Executive Officer of Petro-Canada, as non-executive director of the Company.

HIGHLIGHTS SUBSEQUENT TO QUARTER END:

·; On July 28, the Company closed an equity raise consisting of a Canadian bought deal and UK private placement for aggregate gross proceeds of approximately $150 million. 47.6 million common shares of Ithaca at a price of C$1.70 per common share for aggregate gross proceeds of C$81 million were purchased on a "bought deal basis" by a syndicate of underwriters led by CIBC World Markets Inc. CIBC World Markets plc and Cenkos Securities plc also acted as placing agents and joint bookrunners to sell to purchasers resident in the United Kingdom, 45.1 million common shares of Ithaca at a price of £1.07 per common share (approximately equivalent to C$1.70 per common share) for aggregate gross proceeds of approximately C$77 million (the "private placement").

·; On July 12, the Company signed and completed the Facility agreement for up to US$140 million with BOS.

·; On August 4, the Company entered into an agreement to acquire certain UK North Sea gas interests from GDF SUEZ E&P UK Ltd for a cash consideration of £11.25 million (approximately US$16.9 million) (the "Acquisition"). The Acquisition includes operated interests in the producing Anglia Field, for which the assumption of operatorship is subject to certain approvals, and the Garnet and Opal discoveries, and a non operated interest in the producing Topaz Field. The effect of this Acquisition will enlarge and diversify the Company's production base through the addition of net estimated 2010 production of over 6 million standard cubic feet per day (1,000 barrels of oil equivalent per day) based on management's estimates. In addition, the Acquisition has been valued by management on the basis of net proved plus probable reserves in excess of 3 million barrels of oil equivalent.

RESULTS OF OPERATIONS

During the quarter ended June 30, 2010 total net production averaged 4,914 bopd with an average realized price of $73.98/bbl, (comparative quarter 2009 5,095 bopd average with an average realized price of $60.38/bbl). The decrease in production was primarily due to the decrease in the Company's working interest from Q2 2009 to Q2 2010 (gross production has increased in the quarter). The increase in price is due to an increase in the 'spot' Brent oil price in the quarter. During the six months ended June 30, 2010 total net production averaged 4,552 bopd with an average realized price of $76.70/bbl, (comparative period 2009 2,883 bopd average with an average realized price of $59.51/bbl). The large increase in production was due to the start up of Jacky and reinstatement of Beatrice Bravo production in Q2 2009, offset by the decrease in working interests on Beatrice and Jacky. The increase in price is due to an increase in the 'spot' Brent oil price in the year to date.

Operating costs on a per barrel basis were $21 for the quarter ($25/bbl in Q2 2009) and $22/bbl for the six months ended June 30, 2010 ($46/bbl in the comparative period 2009). This rate has steadily reduced since the reinstatement of Beatrice Bravo production and the start-up of Jacky production in Q2 2009, as the operating costs are shared between the Beatrice and Jacky fields. Operating and G&A costs have decreased on absolute terms both for the quarter and year to date due to the reduction in the Corporation's working interest noted above. Depletion, depreciation and accretion expense for the quarter has decreased from Q2 2009 and also for the six months ended June 30, 2010, mainly due to significant additions to proved reserves recorded in Q4 2009 and Q2 2010. The Corporation also recorded a $0.6 million loss on derivatives for the quarter ended 30 June, 2010, being a combination of the unrealized gain on the revaluation of the foreign exchange forward contract and realized losses on the execution of the forward contract due to movements in exchange rates. The large swing on derivatives for the six months ended 30 June 2010 ($2.7 million loss 2010 vs $7.0 million gain 2009) was due to the differing contracts in place in 2009 and 2010 and the movements in underlying exchange rates. The three month period to 30 June 2010 shows a credit of $0.6 million for stock based compensation. This relates to a year-to-date reclassification within costs in Q2 2010 and now shows a charge to the Corporation of $0.5m for the six months ended 30 June, 2010. The reduction in stock based compensation charged in the six months of 2010 relates to the reduction in working interest noted above. The significant reduction in interest and bank charges in 2010 is due to the repayment of all outstanding debt in Q3 2009. For many income statement items, no valid comparison can be drawn to the quarter ended June 30, 2009 given the significantly changed context of the production, price and net interest basis.

For the quarter ended June 30, 2010 the Corporation had a net profit of $10.5 million. The profits were delivered by sustained production levels, higher commodity prices from Q1 2009, lower operating costs, and a lower unit depletion cost following reserve revaluations. This compared to a net profit of $3.8 million in Q2 2009, a period with lower commodity prices and higher depletion rates due to lower proved reserves.

SUMMARY OF QUARTERLY RESULTS

The following table provides a summary of quarterly results of the Corporation for its eight most recently completed quarters:

	30-Jun-10	31-Mar-10	31/12/2009*	30/09/2009*	30/06/2009*	31/03/2009*	31-Dec-08	30-Sep-08	30-Jun-08
						(Restated)
	US$	US$	US$	US$	US$	US$	US$	US$	US$
REVENUE
Oil Sales	33,094,072	30,101,532	33,850,242	36,375,077	28,280,275	2,775,844	2,472,106	-	-
Other income	1,035,409	665,136	5,809,265	923,692	1,476,638	969,595	-	-	-
Interest income	3,295	2,202	16,277	96,456	146,305	91,950	143,441	160,635	126,137
	34,132,776	30,768,870	39,675,783	37,395,225	29,903,218	3,837,389	2,615,547	160,635	126,137

COSTS AND EXPENSES
General and administrative	740,408	776,195	(446,647)	2,499,933	1,918,315	2,643,974	3,287,190	1,954,388	1,680,204
Loan Fee Amortization	-	-	-	-	-	-	1,194,497	2,339,082	135,312
(Gain) / Loss on Financial Instruments	581,538	2,157,528	(5,360,600)	4,324,781	(5,602,293)	(1,441,234)	1,777,181	-	-
Revaluation of Nigg Heel of Tank	5,136	(184,404)	(363,409)	(3,750)	483,818	-	-	-	-
Operating	9,460,016	8,689,379	13,665,115	8,712,112	11,724,320	12,210,632	4,587,834	-	-
Depreciation and accretion	13,103,774	11,247,785	12,893,949	20,378,993	17,585,049	2,467,981	2,076,311	249,794	278,838
(Gain) / Loss on foreign exchange	362,184	1,576,075	2,318,756	2,051,399	(890,935)	(226,546)	7,739,985	648,805	(447,527)
Stock based compensation	(640,297)	1,151,450	(599,759)	468,066	332,189	437,756
Interest and bank charges	3,917	4,011	(451)	108,323	572,826	11,536
	23,616,676	25,418,019	22,106,954	38,539,857	26,123,289	16,104,099	20,662,998	5,192,069	1,646,827

NET PROFIT / (LOSS) BEFORE TAX	10,516,100	5,350,851	17,568,829	(1,144,632)	3,779,929	(12,266,710)	(18,047,451)	(5,031,434)	(1,520,690)

TAXES	-	-	(80,972)	-	-	-	(347,458)	-	-

NET PROFIT / (LOSS) AFTER TAX	10,516,100	5,350,851	17,487,857	(1,144,632)	3,779,929	(12,266,710)	(18,394,909)	(5,031,434)	(1,520,690)

NET PROFIT / (LOSS) PER SHARE	0.06	0.03	0.11	(0.01)	0.02	(0.08)	(0.14)	(0.04)	(0.01)

Deficit, beginning of period	(25,080,131)	(30,430,982)	(47,918,839)	(46,774,207)	(50,554,136)	(38,287,426)	(19,892,517)	(14,861,083)	(13,340,393)

Deficit, end of period	(14,564,031)	(25,080,131)	(30,430,982)	(47,918,839)	(46,774,207)	(50,554,136)	(38,287,426)	(19,892,517)	(14,861,083)

* Certain comparative figures have been reclassified to conform with the current year's financial statement presentation

Significant factors and trends that have impacted the Corporation's results during the above periods include:

·; The Corporation took over the operation of the producing Beatrice field in November 2008. The Jacky field commenced its first oil production in April 2009 along with the restart of production from the Beatrice Bravo facility.

·; Revenue is significantly impacted by underlying commodity prices. Commodity prices have steadily risen through the periods in which the Corporation had production, but falling back slightly in Q2 2010. The Corporation has utilized forward sales contracts and foreign exchange contracts to reduce the exposure to commodity price and exchange rate fluctuations. These contracts can cause volatility in net income as a result of unrealized gains and losses due to movements in the oil price and US Dollar: British Pounds Sterling exchange rate.

·; The Corporation's general and administrative costs rose with increased work scope. However, the Corporation's lower net average interest in properties following the Dyas II transaction resulted in a reduction in the net G&A borne by the Company. G&A costs charged out to the partners were actualized at the 2009 year end in accordance with industry practice resulting in credits to both G&A and stock based compensation.

LIQUIDITY AND CAPITAL RESOURCES

As at 30th June 2010, Ithaca had working capital of $72.5 million which included a cash balance of $51.0 million. Available cash has been, and is currently, invested on deposit with the Bank of Scotland. Management has received confirmation from the financial institution that these funds are available on demand.

During the quarter ended 30th June 2010 there was a cash inflow from operating, investing and financing activities of $30.9 million (Comparative 2009 quarter outflow of $10.5 million). The net inflow was largely a result of positive cash flows from operating activities of $38.3 million, offset by a $13.8 million investment in fixed assets. The fixed asset investment in the quarter predominantly related to the Stella Appraisal Well, Beatrice Alpha work-overs and Athena long lead items.

Significant capital will be required to further the Corporation's currently anticipated development activities in 2010. The combination of the proceeds from the Bought Deal Offering and Private Placement, together with debt made available from the Bank of Scotland facility and a portion of anticipated cash flows, means that all of the Corporation's current projects are anticipated to be fully funded through to first production.

COMMITMENTS

The Corporation has the following financial commitments:

Year ended	2010	2011	2012	2013	2014	Subsequent to 2014
	US$	US$	US$	US$	US$	US$
Office lease	120,568	241,136	241,136	241,136	241,136	783,692
Exploration license fees	273,524	844,916	1,150,800	1,468,316	-	-
Letter of Intent obligations	751,860	-	-	-	-	-
Total	1,145,952	1,086,052	1,391,936	1,709,452	241,136	783,692

OUTSTANDING SHARE INFORMATION

As at 30th June, 2010, Ithaca had 162,846,973 common shares outstanding along with 15,032,877 options to employees and directors to acquire common shares. Under certain circumstances relating to the Athena Field, Gemini Oil & Gas Fund 11 L.P retain the rights to elect to receive warrants to acquire up to 3,000,000 common shares at $3.00 per share. These warrants are still outstanding.

As a result of the Canadian bought deal and UK private placement noted above, the Company currently has 255,459,257 common shares outstanding.

CRITICAL ACCOUNTING ESTIMATES

Ithaca's significant accounting policies are disclosed in note 2 to the December 31, 2009 consolidated financial statements. Certain accounting policies require that management make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These accounting policies are discussed below and are included to aid the reader in assessing the critical accounting policies and practices of the Corporation and the likelihood of materially different results being reported. Ithaca's management reviews these estimates regularly. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates.

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

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

The carrying value of property, plant and equipment is reviewed annually for impairment. The carrying value is assessed to be recoverable if the sum of the undiscounted cash flows expected from the production of proved reserves exceeds the carrying value of the property, plant and equipment. If the carrying value of the property plant and equipment is not assessed to be recoverable, an impairment loss is recognized to the extent that the carrying value exceeds the sum of the discounted cash flows expected from the production of proved and probable reserves. The cost recovery ceiling test and calculation of impairment are based on estimates of reserves, production rates, oil and gas prices, future costs and other relevant assumptions. By their nature, these estimates are subject to measurement uncertainty and the impact on the financial statements could be material.

Liability recognition for asset retirement obligations associated with oil and gas wells are determined using estimated costs discounted based on the estimated life of the asset. These capitalized costs are amortized on a unit-of-production basis, consistent with depletion and depreciation. Over time, the liability is accreted up to the actual expected cash outlay to perform the abandonment and reclamation.

Financial assets or liabilities are only recognized when the entity becomes a party to the contractual provisions of the financial instrument. Financial assets and financial liabilities are, with certain exceptions, initially measured at fair value.

Derivative financial instruments are required to be recorded on the balance sheet at fair value. Any changes in fair value are immediately recorded as a net gain or loss in the statement of net income.

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

The determination of the Corporation's income and other tax liabilities 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.

OFF-BALANCE SHEET ARRANGEMENTS

The Corporation has certain lease agreements which were entered into in the normal course of operations, all of which are disclosed under the heading "Commitments", above. All leases have been treated as operating leases whereby the lease payments are included in operating expenses or general and administrative expenses depending on the nature of the lease. No asset or liability value has been assigned to these leases in the balance sheet as at June 30, 2010.

RELATED PARTY TRANSACTIONS

A director of the Corporation is a partner of Burstall Winger LLP who act as counsel for the Corporation. The amount of fees paid to Burstall Winger LLP in the second quarter of 2010 was $0.1 million (Comparative period 2009 less than $0.1 million). All related party transactions are in the normal course of business and have been measured at the exchange values, being the consideration established and agreed to by the parties and on normal commercial terms comparable to those charged by third parties.

RISKS AND UNCERTAINTIES

The business of exploring for, developing and producing oil and natural gas reserves is inherently risky. There is substantial risk that the manpower and capital employed will not result in the finding of new reserves in economic quantities. There is a risk that the sale of reserves may be delayed due to processing constraints, lack of pipeline capacity or lack of markets. The price the Corporation will receive for its oil and natural gas production may fluctuate continuously and, for the most part, is beyond the Corporation's control.

The Corporation is exposed to financial risks including financial market volatility, fluctuation in interest rates and various foreign exchange rates. Given the increasing development expenditure and operating costs in currencies other than the United States dollar, the Board of the Corporation has a hedging policy to mitigate foreign exchange rate risk on committed expenditure. On October 12, 2009, the Corporation entered into a contract with the Bank of Scotland to hedge its British Pounds Sterling 2010 forecast operating costs, including general and administrative expenses. The hedge amounts to $4 million per month (total $48 million) at a $/£ rate of no worse than $1.60/£1.00 and allows the Corporation to benefit from spot movements down to $1.4975: £1.00. A realized loss of $811,500 has been recognized on the contract for the quarter ended June 30, 2010. The projected weakening of the US Dollar for the remainder of the contract has resulted in an unrealized gain of $229,962 for the quarter ended June 30, 2010. If the US$ had increased by $1 (USD2.49/£1.00) in the quarter ended June 30, 2010 then the profit for the quarter would have been lower by $7.4 million, but due to hedging, this exposure would have been limited to $0.7 million ($14.6 million lower profits and $0.7 million exposure for the 6 months ended June 30, 2010).

The Corporation 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 Corporation has not experienced any material credit loss in the collection of accounts receivable to date.

The Corporation is dependent upon the production rates and oil price to fund the current development program. No commodity price fixes have been entered into by the Corporation at this date. The forecast production budgeted to meet future expenditures is heavily reliant upon the performance of the Jacky well that came on stream on April 6, 2009 and a sustained contribution from the Beatrice field.

The Corporation is also subject to the risks associated with owning oil and natural gas properties, including environmental risks associated with air, land and water. The Corporation takes out market insurance to mitigate many of these operational, construction and environmental risks. In all areas of the Corporation's business there is competition with entities that may have greater technical and financial resources. There are numerous uncertainties in estimating the Corporation's reserve base due to the complexities in estimating the magnitude and timing of future production, revenue, expenses and capital. All of the Corporation's operations are conducted offshore in the UKCS; 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 Corporation has interests. As a result, the Corporation may have limited ability to exercise influence over the operations of these assets and their associated costs. The success and timing of these activities may be outside the Corporation's control.

It should be noted that the Corporation is not required to certify the design and evaluation of the Corporation's disclosure controls and procedures and internal control over financial reporting and it has not completed such an evaluation. Furthermore, given the size of the Corporation there are inherent limitations on the certifying officers to design and implement on a cost effective basis disclosure controls and procedures and internal control over financial reporting that may result in additional risks to the quality, reliability, transparency, and timeliness of annual filings.

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

CONTINGENCY

The Corporation is currently undergoing Joint Venture audits by partners. Any liability arising out of the audits cannot be reasonably determined at this time.

CONTROL ENVIRONMENT

As of June 30, 2010, there were no changes in our internal control over financial reporting that occurred during 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

CHANGES IN ACCOUNTING POLICIES

The consolidated financial statements for the three months ended June 30, 2010 have been prepared following the same accounting policies and methods of computation as the consolidated financial statements as at December 31, 2009.

IMPACT OF FUTURE ACCOUNTING CHANGES

In February 2008, the CICA Accounting Standards Board ("AcSB") confirmed the changeover to IFRS from GAAP will be required for publicly accountable enterprises for interim and annual financial statements effective for fiscal years beginning on or after January 1, 2011, including comparatives for 2010. Ithaca's financial statements up to and including the December 31, 2010 financial statements will continue to be reported in accordance with GAAP as it exists on each reporting date. Financial statements for the quarter ended March 31, 2011, including comparative amounts, will be prepared on an IFRS basis.

In July 2009, the International Accounting Standards Board ("IASB") issued amendments to IFRS 1 "First time adoption of IFRS" allowing additional exemptions for first-time adopters. These amendments allow an entity that used full cost accounting under its previous GAAP to elect to measure oil and gas assets including exploration and evaluation assets and development and production assets being allocated pro rata using reserves volumes or reserve values as of the date of the adoption, providing that all assets are tested for impairment on adoption. Ithaca is currently planning to adopt this exemption.

IFRS adoption is currently scheduled for the Corporation's fiscal year commencing January 1, 2011.

The Company has completed the diagnostic assessment phase by performing comparisons of the differences between Canadian GAAP and IFRS. The Company has determined that the most significant impact of IFRS conversion is to property, plant and equipment. The Company currently follows full cost accounting as prescribed in the Accounting Guideline ("AcG") 16 ,Oil and Gas Accounting-Full Cost." Conversion to IFRS may have a significant impact on how the company accounts for costs pertaining to oil and gas activities. The Company is continuing to monitor the impact of these changes on the Company's financial position. In the second quarter of 2010 no changes were made to the Company's IFRS transition plan. No significant milestones were scheduled for the second quarter 2010. The Company's transition plan remains on schedule, the company is continuing with the design, planning and solution development stage and all changes to IFRS required prior to January 1, 2011 will be incorporated as required.

FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS

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

Available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the instrument is derecognized or impaired. 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.

The Corporation has classified its cash and cash equivalents, restricted cash and long term liability as held-for-trading, which are measured at fair value with changes being recognized in net income. Accounts receivable are classified as loans and receivables; operating bank loans, accounts payable and accrued liabilities are classified as other liabilities, all of which are measured at amortized cost the classification of all financial instruments is the same at inception and at June 30, 2010.

The Corporation's accounts receivables are primarily with industry partners and are subject to normal industry credit risks. The Corporation extends unsecured credit to these entities, and therefore, the collection of any receivables may be affected by changes in the economic environment or other conditions. Management believes the risk is mitigated by the financial position of the entities.

FORWARD-LOOKING INFORMATION

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

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

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

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

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

• capital expenditure programs and other expenditures;

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

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

• the Corporation's ability to raise capital;

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

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

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

• the Corporation's future operating and financial results;

• the ability of the Corporation to optimize operations and reduce operational expenditures;

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

• production rates;

• targeted production levels;

• timing and cost of the development of the Corporation's reserves; and

• estimates of production volumes and reserves in connection with the Acquisition;

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

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

• Access to third party host parties can be negotiated and accessed within the expected timeframe;

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

• Completion of the farmout with Challenger Minerals (North Sea) Limited (CMI Farmout) resulting in the Corporation holding a 50.33% equity interest in each of the Stella and Harrier discoveries;

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

• Reserves volumes assigned to Ithaca's properties;

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

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

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

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

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

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

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

• Ithaca's ability to access the facility with BOS; and

• Ithaca's ability to complete the Acquisition

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

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

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

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

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

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

• the Corporation is not able to finalize the CMI Farmout on the terms contemplated or at all;

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

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

• the accuracy of oil and gas reserve estimates and estimated production levels as they are affected by the Corporation's exploration and development drilling and estimated decline rates, in particular the production rates of the Jacky field and Beatrice field;

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

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

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

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

• changes in general economic, market and business conditions in Canada, North America, the United Kingdom, Europe and worldwide, specifically being the unavailability of the debt and equity markets to the Corporation during the current economic crisis;

• 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;

• adverse regulatory rulings, orders and decisions;

• risks associated with the nature of the Common Shares;

• the risk that the Acquisition does not close on the terms contemplated or at all; and

• the impact of adoption of IFRS as opposed to GAAP from January 1, 2011;

Statements relating to reserves are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitably produced in the future. Many of these risk factors, other specific risks, uncertainties and material assumptions are discussed in further detail throughout the AIF and in the MD&A. Readers are specifically referred to the risk factors described in the AIF under "Risk Factors" and in other documents the Corporation files from time to time with securities regulatory authorities. Copies of these documents are available without charge from Ithaca or electronically on the internet on Ithaca's SEDAR profile at www.sedar.com.

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

This information is provided by RNS

The company news service from the London Stock Exchange

END

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