Value Microcaps Junior Energy

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IAE.V :First Quarter 2009 Results out. Temporarily liquidity issue , I guess Dyas might step in and hand out a bridge loan or some like that? Did not react bad on the news. I grabbed a few more at .67

The production from Jacky and Beatrice was lower in the first quarter than anticipated with current production now exceeding forecasts. As a consequence a short term liquidity shortfall may occur prior to receipt of the proceeds from the improved production. Discussions are ongoing with a number of parties and management are confident that this short term deficit will be covered. Current production now exceeds forecasts.

Ithaca Energy Inc.: First Quarter 2009 Results

1:21 PM ET, May 29, 2009

LONDON, UNITED KINGDOM and CALGARY, ALBERTA, May 29, 2009 (Marketwire via COMTEX) -- NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Ithaca Energy Inc. ("Ithaca Energy") (IAE)(AIM:IAE), a Canadian independent oil and gas company with exploration, development and production assets in the UK North Sea, is pleased to announce its results for the first quarter ended March 31, 2009.

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

Note that as joint venture budgets are denominated in British Pounds Sterling ("Pounds Sterling "), in the discussion and analysis, British Pounds Sterling has been used to compare actual costs against budgeted costs.

SUMMARY OF KEY EVENTS

Operations

- Beatrice Alpha produced 77,863 barrels (58,203 barrels net to Ithaca) of oil with 50% downtime as the facilities were prepared for receiving Bravo and Jacky production.

- Average realised price for the quarter was $43.78/barrel.

- The "Energy Enhancer" rig was contracted to complete the Jacky production well.

- Beatrice Bravo production was reinstated from March 31, 2009.

- The 43/21b-5z exploration well (the "Carna" well) encountered a significant gas reservoir.

- A 5 year agreement with BP Oil International Limited ("BP" ) was entered in to for the sales and marketing of the entire Corporation's qualifying oil production from the North Sea.

Financials

- In the three months to March 31, 2009 total fixed assets increased to $311.0 million ($296.5 million as at December 31, 2008) representing the investment in completing the Jacky development (Pounds Sterling 59.2 million net to Ithaca), the Bravo reinstatement (expected Pounds Sterling 8.7 million net to Ithaca) and the cost of the Carna exploration well (Pounds Sterling 7.8 million net to Ithaca). Additional costs at Jacky were primarily due to weather downtime and activity rescheduling, and at Carna as a result of a mechanical sidetrack.

- Total cash at the quarter end stood at $23.2 million of which $10.2 million represented restricted cash held as collateral for letters of credit issued by the Bank of Scotland ($39.2 million as at December 31, 2008, of which $12.3 million was restricted) with a further $2.3 million (net to Ithaca) on deposit with ENSCO Offshore (UK) Limited for a future rig commitment.

- Net loss for the quarter was $8.7 million (loss of $5.5 million for the 3 months ended March 31, 2008), due principally to the Beatrice operating costs whilst production was shut down to complete the Jacky tie-in.

- UK Sterling operating expenses for 2009 of $49 million equivalent were fixed at a rate of no worse than US$1.40:Pounds Sterling 1.0, generating an unrealised gain for the quarter of $1.5 million.

Events Subsequent to March 31st, 2009

- The Jacky field, which started production on April 6, 2009, commenced flowing without artificial lift at gross rates of approximately 8,800 barrels of oil per day (bopd) (5,920 bopd net to Ithaca). On May 20, 2009, the downhole pumps were switched on and the Jacky field rates have now stabilised at approximately 10,000 bopd (6,728 bopd net to Ithaca).

- Combined production (Jacky and the Beatrice Alpha and Bravo facilities) is currently around 11,500 bopd (7,850 bopd net to Ithaca).

- Net oil sales in April totalled 98,427 barrels at a realised price of $53.10/barrel.



Ithaca Energy Inc.

QUARTERLY FINANCIAL STATEMENTS TO MARCH 31, 2009

Consolidated Balance Sheets
(unaudited)


March 31, December 31,
2009 2008
US$ US$
---------------------------------------------------------------------------
---------------------------------------------------------------------------
ASSETS

Current assets
Cash and cash equivalents $ 12,983,597 $ 26,943,802
Accounts receivable 8,286,533 12,879,389
Restricted cash 10,230,179 12,305,014
Deposits, prepaid expenses and other 4,328,443 7,329,059
Inventory 1,289,032 1,289,032
---------------------------------------------------------------------------
37,117,784 60,746,296

Long term receivable 200,308 400,617
Property, plant and equipment (net) (note 3) 310,980,100 296,523,448
---------------------------------------------------------------------------
$ 348,298,192 $ 357,670,361
---------------------------------------------------------------------------
---------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable and accrued liabilities $ 27,869,772 $ 41,057,033

Loan payable (note 10) 68,100,359 61,200,000
Long term liability on Beatrice acquisition 4,155,354 4,137,413
Asset retirement obligation (note 6) 11,874,541 7,407,290
---------------------------------------------------------------------------
112,000,026 113,801,736

Shareholders' equity
Share capital (note 4) $ 277,029,766 $ 277,029,766
Contributed surplus (note 5) 6,235,785 5,126,285
Deficit (46,967,385) (38,287,426)
---------------------------------------------------------------------------
236,298,166 243,868,625

$ 348,298,192 $ 357,670,361
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Commitments (note 8)
"Approved on behalf of the Board"

"John P. Summers"
-------------------------
Director

"Michael B. A. Nobbs"
-------------------------
Director



Ithaca Energy Inc.

Consolidated Statements of Net and Comprehensive Loss and Deficit
(unaudited) 3 months ended


March 31, March 31,
2009 2008
US$ US$

REVENUES
Oil sales $ 2,775,844 $ -
Other income 969,595 -
Interest income 91,950 379,350
----------- ----------------
3,837,389 379,350
----------- ----------------

COSTS AND EXPENSES
General and administrative 1,534,474 1,077,395
Operating 9,061,637 -
Depletion, depreciation and accretion 2,467,981 206,540
(Gain) / loss on foreign exchange (226,546) 3,997,151
Gain on financial instrument (note 9) (1,441,234) -
Stock based compensation 1,109,500 598,198
Interest and bank charges 11,536 -
----------- ----------------
12,517,348 5,879,284
----------- ----------------

Loss before income taxes $ 8,679,959 $ 5,499,934

Current income tax - -

----------- ----------------
Net and comprehensive loss after income taxes $ 8,679,959 $ 5,499,934

Deficit, beginning of period $ 38,287,426 $ 7,840,459
----------- ----------------

Deficit, end of period $ 46,967,385 $ 13,340,393
----------- ----------------
----------- ----------------

Net loss and comprehensive loss per share
(basic & diluted) (note 7) $ 0.05 $ 0.05


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


Consolidated Statements of Shareholders' Equity
(unaudited - all amounts are US$)


Share Capital Contributed Deficit 2009 2008
Surplus Total Total
Balance,
January 1 $277,029,766 $5,126,285 $(38,287,426) $243,868,625 $203,476,743
Stock
based
compensat-
ion - 1,109,500 - 1,109,500 598,198
Options
exercised - - - - 759,599
Loss for
the period - - (8,679,959) (8,679,959) (5,499,934)
----------------------------------------------------------------------------

Balance,
March 31 $277,029,766 $6,235,785 $(46,967,385) $236,298,166$199,334,606
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Ithaca Energy Inc.

Consolidated Statements of Cash Flows
(unaudited) 3 months ended


March 31, March 31,
2009 2008
US$ US$
---------------------------------------------------------------------------
---------------------------------------------------------------------------
CASH PROVIDED BY (USED IN):

OPERATING ACTIVITIES:

Net loss $ (8,679,959) $ (5,499,934)
Items not affecting cash
Depletion, depreciation and accretion 2,467,981 206,539
Unrealised gain on financial instrument (1,441,234) -
Stock based compensation (note 5) 1,109,500 598,198
---------------------------------------------------------------------------
(6,543,712) (4,695,197)
Changes in non-cash working capital 9,372,398 (62,687)
---------------------------------------------------------------------------

2,828,686 (4,757,884)

FINANCING ACTIVITIES:

Proceeds from issuance of shares - 759,599
Dyas loan 6,900,359 -
---------------------------------------------------------------------------
6,900,359 759,599

INVESTING ACTIVITIES:

Oil and natural gas properties (12,455,097) (30,588,199)
Office furniture and equipment (2,283) (135,366)
---------------------------------------------------------------------------
(12,457,380) (30,723,565)
Changes in Non-Cash Working Capital relating
to investing activities (10,854,007) (2,595,468)
---------------------------------------------------------------------------
(23,311,387) (33,319,033)

Unrealised gain on foreign exchange (377,863) (262,252)

(DECREASE) IN CASH AND CASH EQUIVALENTS $ (13,960,205) $ (37,579,570)

Cash and cash equivalents, beginning of
period $ 26,943,802 $ 96,214,707
---------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 12,983,597 $ 58,635,137
---------------------------------------------------------------------------
---------------------------------------------------------------------------





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

1. NATURE OF OPERATIONS

Ithaca Energy Inc. (the "Corporation" or "Ithaca Energy"), incorporated in Alberta, Canada on April 27, 2004 and its wholly-owned subsidiary Ithaca Energy (UK) Limited, incorporated in Scotland are a publicly traded group of companies 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".

The recoverability of amounts shown for oil and natural gas properties is dependent upon the determination of economically recoverable reserves.

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The unaudited interim consolidated financial statements of the Corporation include the accounts of Ithaca Energy Inc. and its wholly-owned subsidiary Ithaca Energy (UK) Limited. The interim consolidated statements have been prepared following the same accounting policies and methods of computation as the consolidated financial statements for the fiscal year ended December 31, 2008, except as noted below. The notes to these unaudited interim consolidated financial statements do not conform in all respects to the note disclosure requirements of Canadian generally accepted accounting principles ("GAAP") for annual financial statements. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements as at and for the year ended December 31, 2008.

Change in Accounting Policies

On January 1, 2009, the Corporation adopted the following Canadian Institute of Chartered Accountants ("CICA") Handbook Section: "Goodwill and Intangible Assets", Section 3064. The new standard replaces the previous goodwill and intangible asset standard and revises the requirement for recognition, measurement, presentation and disclosure of intangible assets. The adoption of this standard was applied retroactively and has had no material impact on Ithaca's consolidated financial statements.

In January 2006, the AcSB adopted a strategic plan for the direction of accounting standards in Canada. Accounting standards for public companies in Canada are required to converge with the International Financial Reporting Standards ("IFRS") by 2011. The Corporation is in initial stages of assessing IFRS and its impact on the consolidated financial statements.



3. PROPERTY, PLANT AND EQUIPMENT

March 31, December 31,
2009 2008
----------------------------

Oil and natural gas properties $ 314,608,262 $ 297,918,747
Less accumulated depletion (4,338,258) (2,178,728)
----------------------------
310,270,004 295,740,019
----------------------------

Office furniture and equipment 1,173,505 1,171,222
Less accumulated depreciation and
amortization (463,409) (387,793)
----------------------------
710,096 783,429
----------------------------

----------------------------
Total property, plant and equipment $ 310,980,100 $ 296,523,448
----------------------------
----------------------------





The Corporation acquired the Beatrice facilities on November 10, 2008 and has therefore recognised depletion charges since that date, the depletion charge in the quarter was $2,159,530 (2008: $Nil). As at March 31, 2009, oil and natural gas properties included $275.6 million (2008 -$101.7million) relating to proved properties and $34.6 million (2008 $48.9 million) unproved properties. During the three months to March 31, 2009, the Corporation capitalized $1.2 million (2008 - $1.3 million) of overhead directly related to exploration, appraisal and development activities. Future development costs for the proved oil and gas properties are forecast to be approximately $263.7 million.

4. SHARE CAPITAL

(a) Issued



The issued share capital is as follows:

----------------------------------------------------------------------------
Issued Number Amount
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance December 31, 2008 and March 31, 2009 162,261,975 $ 277,029,766
----------------------------------------------------------------------------





(b) Stock Options

As at March 31, 2009, 10,244,500 stock options to purchase common shares were outstanding, having an exercise price range $0.20 to $3.70 (C$0.25 to C$3.65) per share.



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

March 31, 2009 December 31, 2008
---------------------------------------------------------------------
Number of Wt. Avg. Number of Wt. Avg.
Options Exercise Options Exercise
Price (i) Price (i)
---------------------------------------------------------------------
Balance, Beginning of
Period 10,694,500 $ 1.89 4,330,000 $ 2.01
Granted - - 7,224,500 $ 1.82
Cancelled / lapsed (450,000) $ 0.90 (530,000) $ 1.97
Exercised - - (330,000) $ 2.07
---------------------------------------------------------------------
Balance, End of Period 10,244,500 $ 1.93 10,694,500 $ 1.89
---------------------------------------------------------------------
---------------------------------------------------------------------
Exercisable, End of
Period 3,210,000 $ 1.76 2,613,333 $ 1.91
---------------------------------------------------------------------
---------------------------------------------------------------------

(i) The weighted average exercise price has been converted into U.S.
dollars based on the foreign exchange rate in effect at the date
of issuance.



The following is a summary of stock options outstanding as at
March 31, 2009.


Options Outstanding
-----------------------------------------------------------
Range of Exercise Number of Wt. Avg. Wt. Avg.
Price Options Life Exercise
(Years) Price (i)
-----------------------------------------------------------

$0.20 (C$0.25) 3,444,500 4.67 $ 0.20

$1.69 (C$1.80) 600,000 4.42 $ 1.69

$2.07 - $2.99
(C$2.--2 - C$3.65)(i) 6,200,000 2.23 $ 2.85

-----------------------------------------------------------
10,244,500 3.18 $ 1.93
-----------------------------------------------------------
-----------------------------------------------------------

(i) The exercise price and the weighted average exercise
price have been converted into U.S. dollars based on the
foreign exchange rate in effect at the date of issuance.



The following is a summary of stock options exercisable as at
March 31, 2009.


Options Exercisable
-----------------------------------------------------------
Range of Exercise Number of Wt. Avg. Wt. Avg.
Price Options Life Exercise
(Years) Price (i)
-----------------------------------------------------------

$2.07 - $2.99
(C$2.-2 - C$3.65)(i) 3,210,000 4.24 $ 1.76

-----------------------------------------------------------
3,210,000 4.24 $ 1.76
-----------------------------------------------------------
-----------------------------------------------------------

(i) The exercise price and the weighted average exercise price
have been converted into U.S. dollars based on the foreign
exchange rate in effect at the date of issuance





(c) Stock-Based Compensation

Options granted are accounted for using the fair value method. The compensation cost charged during the quarter ended March 31, 2009 against earnings for stock options granted was $1,109,500 (2008 $598,198) 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:



No options have been granted in the three months ended March 31, 2009.

------------------
For the year ended
2008
---------------------------------------------------
---------------------------------------------------
Risk free interest rate 3.12
---------------------------------------------------
Expected dividend yield 0%
---------------------------------------------------
Expected stock volatility 154%
---------------------------------------------------
Expected life of options 5 years
---------------------------------------------------
Weighted Average Fair Value $0.92
---------------------------------------------------



5. CONTRIBUTED SURPLUS

-------------------------
March 31, December 31,
2009 2008
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Balance, beginning of period $ 5,126,285 $ 1,765,333
--------------------------------------------------------------------------
Issue of Stock Options 1,109,500 3,529,252
--------------------------------------------------------------------------
Transfer to Share Capital on exercise of options - (168,300)
--------------------------------------------------------------------------
Balance, end of period $ 6,235,785 $ 5,126,285
--------------------------------------------------------------------------





6. ASSET RETIREMENT OBLIGATIONS

The total future asset retirement obligation was estimated 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 $15,797,158 as at March 31, 2009. The Corporation uses a credit adjusted risk free rate of 8.0 percent based upon the Corporation's current cost of borrowing and an inflation rate of 2.5 percent over the varying lives (1 to 3 years) of the assets to calculate the present value of the asset retirement obligation. Note that upon the acquisition of the Beatrice Field in November 2008, the Corporation did not assume the decommissioning liabilities



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

--------------------------
March 31, December 31,
2009 2008
-------------------------------------------------------------------
-------------------------------------------------------------------
Balance, beginning of period $ 7,407,290 $ 4,716,475
-------------------------------------------------------------------
Liabilities incurred 4,234,417 4,493,350
-------------------------------------------------------------------
Accretion 232,834 434,730
-------------------------------------------------------------------
Liabilities disposed of - (2,237,265)
-------------------------------------------------------------------
Balance, end of period $ 11,874,541 $ 7,407,290
-------------------------------------------------------------------





7. PER SHARE AMOUNTS

The weighted average number of shares outstanding during 2009 was 162,261,975 (2008: 112,153,184). As the earnings were negative for the quarter, the weighted average number of fully diluted shares is not separately utilised in the per share values.

8. COMMITMENTS



As at March 31, 2009, the Corporation had the following financial
commitments:

--------------------------------------------------------------
Year ended 2009 2010 2011
--------------------------------------------------------------
--------------------------------------------------------------
Office sublease $ 240,000 $ 320,000 $ 320,000
--------------------------------------------------------------
Exploration license fees $ 183,750 $ 245,000 -
--------------------------------------------------------------
Inner Moray Firth $ 27,078,000 - -
--------------------------------------------------------------
Exploration Well - $ 14,000,000 -
--------------------------------------------------------------





9. FINANCIAL INSTRUMENTS

There have been no significant changes from the previous quarter to the Corporation on its exposure to risks and management's objectives, policies and processes to manage the market risks outlined below.

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 one of the Corporation's most significant market risk exposures. 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, North American supply and demand 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.

ii) Interest Risk

The Corporation expects to use floating rate debt to finance its developments and operations, fixed as required by the banking facility terms. The Corporation is exposed to interest rate risk to the extent that LIBOR may fluctuate. As the Corporation's debt is largely denominated in U.S. dollars ("USD") the interest rate is principally set against USD LIBOR.

The Corporation will evaluate its annual forward cash flow requirements on a rolling monthly basis. Accordingly, individual facility amounts utilized and related interest terms will vary.

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 USD. The exposure to foreign exchange risk is partly mitigated since debt financing is mostly in USD. Since time passes between the recording of a receivable or payable transaction and its collection or payment, the Corporation is exposed to gains or losses on non USD amounts and on balance sheet translation of monetary accounts denominated in non USD amounts upon spot rate fluctuations from quarter to quarter.

The Corporation believes that its foreign exchange risk is partially mitigated in that revenues and interest expense and a portion of its operating and exploration costs are largely transacted in USD. In addition, additions to plant property and equipment are recorded and translated at historical cost.

On March 11, 2009, the Corporation entered in to a "Window Forward Plus" contract with the Bank of Scotland to hedge circa 90% of the Corporation's known future US Dollar to British Pound Sterling exchange rate exposure. The contract ensures that the Corporation, which incurs a substantial amount of its operating expenditure in British Pounds Sterling ("Pounds Sterling "), is able to lock in a rate of no worse than USD1.40:Pounds Sterling 1.0 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:Pounds Sterling 1.0 (the "Trigger" rate). Any strengthening of the USD/Pounds Sterling rate beyond the Trigger rate during any of the periods or "windows" between the transaction dates will lead to a rate of USD1.40:Pounds Sterling 1.00 being applied to that individual transaction. The contract covers $49 million equivalent of British Pounds Sterling expenditure. The subsequent weakening of the US Dollar has resulted in an unrealised gain on the contract of $1.5 million for the period ended March 31, 2009.

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 March 31, 2009 substantially all accounts receivables are current, being defined as less than 90 days. Accordingly, there is no allowance for doubtful accounts on accounts receivable.

v) Liquidity Risk

Liquidity risk includes the risk that as a result of its operational liquidity requirements the Company 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 March 31, 2009, substantially all accounts payable are current.

10. 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 management of capital, the Corporation includes shareholders' equity, working capital and interest bearing debt. 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.



--------------------------------------------------------------
(in $ millions) March 31, 2009 December 31, 2008
--------------------------------------------------------------
Debt $ 68.1 $ 61.2
--------------------------------------------------------------
Equity 236.3 243.9
--------------------------------------------------------------
Debt as a % of Equity 29% 25%
--------------------------------------------------------------





As at March 31, 2009, there are externally imposed debt covenants with respect to the Corporation's capital structure. These covenants relate to the loan facility with Dyas (UK) Limited. All covenants have been complied with.

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

11. RELATED PARTY TRANSACTIONS

A Director of the Corporation is a partner in Burstall Winger LLP who acts as counsel for the Corporation. The amount of fees, on an arms length basis, paid to Burstall Winger LLP in the three months ended March 31, 2009 were $113,116 (2008 - $23,786).

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

The following is management's discussion and analysis ("MD&A") of the operating and financial results of Ithaca Energy Inc. (the "Corporation" or "Ithaca") for the three months ended March 31, 2009. The information is provided as of May 28, 2009. The 2009 results have been compared to the results for the comparative period in 2008.

This discussion and analysis should be read in conjunction with the Corporation's unaudited consolidated financial statements as at March 31, 2009 and 2008 and for each of the three month periods then ended, and with the Corporation's audited consolidated financial statements as at December 31, 2008, together with the accompanying notes, and the December 31, 2008 MD&A and Annual Information Form. These documents and additional information about Ithaca Energy Inc. are available on SEDAR at www.sedar.com.

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

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

Barrel of oil equivalent (boe) volumes are reported at 6:1 with 6 MCF equals 1 boe.

The Corporation's reporting currency is US Dollars ("$"); unless indicated otherwise, all amounts are presented in US Dollars.

Note that as joint venture budgets are denominated in British Pounds Sterling ("Pounds Sterling"), in the discussion and analysis, British Pounds Sterling has been used to compare actual costs against budgeted costs.

SUMMARY OF KEY EVENTS

Operations

- Beatrice Alpha produced 77,863 barrels (58,203 barrels net to Ithaca) of oil with 50% downtime as the facilities were prepared for receiving Bravo and Jacky production.

- Average realised price for the quarter was $43.78/barrel.

- The "Energy Enhancer" rig was contracted to complete the Jacky production well.

- Beatrice Bravo production was reinstated from March 31, 2009.

- The 43/21b-5z exploration well (the "Carna" well) encountered a significant gas reservoir.

- A 5 year agreement with BP Oil International Limited ("BP") was entered in to for the sales and marketing of the entire Corporation's qualifying oil production from the North Sea.

Financials

- In the three months to March 31, 2009 total fixed assets increased to $311.0 million ($296.5 million as at December 31, 2008) representing the investment in completing the Jacky development (Pounds Sterling 59.2 million net to Ithaca), the Bravo reinstatement (expected Pounds Sterling 8.7 million net to Ithaca) and the cost of the Carna exploration well (Pounds Sterling 7.8 million net to Ithaca).

- Total cash at the quarter end stood at $23.2 million of which $10.2 million represented restricted cash held as collateral for letters of credit issued by the Bank of Scotland ($39.2 million as at December 31, 2008, of which $12.3 million was restricted) with a further $2.3 million (net to Ithaca) on deposit with ENSCO Offshore (UK) Limited for a future rig commitment.

- Net loss for the quarter was $8.7 million (loss of $5.5 million for the 3 months ended March 31, 2008), due principally to the Beatrice operating costs whilst production was shut down to complete the Jacky tie-in.

- UK Sterling operating expenses for 2009 of $49 million equivalent were fixed at a rate of no worse than US$1.40:Pounds Sterling 1.0, generating an unrealised gain for the quarter of $1.5 million.

Events Subsequent to March 31st, 2009

- The Jacky field, which started production on April 6, 2009, commenced flowing without artificial lift at gross rates of approximately 8,800 barrels of oil per day (bopd) (5,920 bopd net to Ithaca). On May 20, 2009, the downhole pumps were switched on and the Jacky field rates have now stabilised at approximately 10,000 bopd (6,728 bopd net to Ithaca).

- Net oil sales in April totalled 98,427 barrels at a realised price of $53.10/barrel.

BUSINESS OF THE CORPORATION

Ithaca Energy is an oil and gas exploration, development and production corporation active in the United Kingdom's Continental Shelf ("UKCS"). Exploration, development and production activities are focused on the Inner and Outer Moray Firth and the Central and Southern Gas Basin areas of the UKCS. The goal of Ithaca Energy, in the near term, is to achieve oil production from the development of existing discoveries on licences held by the Corporation, to originate and participate in exploration on licences held by the Corporation that has the potential of making significant contributions to future production, and to consider other opportunities for growth as they are presented to the Corporation. The Corporation commenced first oil production from its 67.3% owned Jacky field on April 6, 2009. Production from its 66.7% owned Stella field and its 29.9% owned Carna field are both expected to commence in 2011, whilst development of its 52.3% owned Athena field is currently on hold pending a re-evaluation of the project with improved oil prices and reductions in the oil service sector costs.

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

OVERALL PERFORMANCE



Property, plant and equipment increased to $311.0 million at March 31, 2009,
from $296.5 million at December 31, 2008, as analyzed below:


----------------------------------------------------------------------
Area $'000 March 31 December 31
2009 2008
----------------------------------------------------------------------
Inner Moray Firth 156,694 152,375
----------------------------------------------------------------------
Outer Moray Firth 119,800 119,642
----------------------------------------------------------------------
Central North Sea 19,079 19,079
----------------------------------------------------------------------
NW Core 12,170 2,117
----------------------------------------------------------------------
SE Core 2,527 2,527
----------------------------------------------------------------------
Office Equipment 710 783
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Total $ 310,980 $ 296,523
----------------------------------------------------------------------





The material increase in the Inner Moray Firth primarily relates to the Jacky development, and in the NW Core the increase relates to the Carna exploration well.

Beatrice Alpha and Bravo Production

In the three months ended March 31, 2009, Beatrice Alpha produced 58,203 (net) Boe of oil. On March 31, 2009, the Beatrice Bravo production was reinstated on free flow with down-hole pumps expected to be switched on once Jacky production has stabilised. During the quarter the platform was operating 50% of the time in order to tie back the Jacky facilities. The main Nigg export line has been inspected and it has been determined that pipeline corrosion is within expected tolerance levels and that the remaining expected life is sufficient for the Corporation's current anticipated requirements. The total capital expenditure relating to the Bravo reinstatement is expected to be Pounds Sterling 11.7 million (Pounds Sterling 8.7 million net to Ithaca) versus a budget of Pounds Sterling 10.7 million.

Sproule, in its review of the Corporation's reserves effective December 31, 2008, has assigned to the Beatrice oilfield proved reserves of 1.3 million barrels of oil equivalent ("MMboe"), and probable reserves of 2.2 MMboe.

Jacky Development

The Jacky field came on stream on the April 6, 2009 at initial rates of approximately 8,800 bopd (gross). Downhole pressures and deliverability were above expectations and as a result the activation of the downhole pump was delayed in order to protect it.

Average production in April and May (to date) from Jacky and Beatrice (Bravo and Alpha facilities) was lower than the initial rates experienced due to the fall in downhole pressure from Jacky; constraints from ongoing commissioning and well maintenance work at Beatrice; and a portion of initial Jacky production contributing to fill the infield and export pipelines. As such in April the average Jacky and Beatrice volumes arriving at the Nigg Oil Terminal were 4,740 bopd (3,294 net to Ithaca) and in May, prior to switching on the downhole pump at Jacky, production from Jacky and Beatrice was approximately 5,390 bopd (3,710 bopd net to Ithaca). These numbers compare with expectations, prior to Jacky field startup, of 7,500 bopd gross (5,054 bopd net to Ithaca).

Now that the reservoir pressure has fallen, the downhole pump has been turned on and the field is producing at approximately 10,000 bopd (6,728 bopd net to Ithaca). This is significantly above the levels expected from the field.

The final cost of the Jacky construction project was Pounds Sterling 79.3 million (Pounds Sterling 59.2 million net to Ithaca). This compares to an original budget of Pounds Sterling 59.7 million. Additional costs were primarily due to weather downtime leading to the use of the 'Hermod' Heavy Lift Vessel as announced on January 6, 2009, and activity re-scheduling.

Sproule, in its review of the Corporation's reserves effective December 31, 2008, has assigned to the Jacky oilfield proved reserves of 1.0 MMboe, and probable reserves of 2.4 MMboe.

Commissioning and maintenance work is now drawing to a close and the Beatrice and Jacky facilities are currently producing at combined rates of approximately 11,500 bopd (7,850 bopd net to Ithaca) and will quickly make up the production deficit from April and May.

Carna Exploration Well

As reported by the Operator, Venture North Sea Gas Limited, the Carna well (43/21b-5/5z) commenced drilling from the ENSCO 92 drilling rig on December 26, 2008 and reached a total measured depth of 11,500 feet on March 4, 2009. The well was designed to test a Carboniferous fault block and a significant gas reservoir was discovered following a mechanical sidetrack carried out in January. Well log data indicates a gas column in excess of 1490 feet TVD (true vertical depth) and net pay of 127 feet TVD. The well tested gas at stabilised rates in line with expectations with a gross rate of 9 million cubic feet per day ("MMcfpd") on a 48/64th choke from a vertical well penetrating the Carboniferous. No formation water was produced during the test. The well has been suspended pending further sidetrack to become a future production well and a field development decision will be made later in 2009 following a full evaluation of the reservoir properties, development and export options.

Costs for the Carna exploration well were Pounds Sterling 7.8 million (Ithaca net) following a mechanical sidetrack and welltest as compared to an original budget, including testing, of Pounds Sterling 5.6 million (Ithaca net).

Ithaca holds 29.9% of the Carna discovery and 44.9% in the surrounding area.

BP Sales and Marketing Agreement

The Corporation signed a 5 year agreement with BP Oil International Limited ("BP") for sales and marketing of all of its qualifying oil production from the North Sea. The arrangement covers all of Ithaca's UK oil production up to the end of 2014 (except where such production is already covered by an existing sales agreement). Oil produced by Joint Venture partners in fields in which Ithaca holds an interest can be included.

SUMMARY OF QUARTERLY RESULTS

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



Ithaca Energy
Quarterly Results

31-Mar-09 31-Dec-08 30-Sep-08 30-Jun-08

REVENUE $ $ $ $
Oil Sales 2,775,844 2,472,106
Other income 969,595
Interest income 91,950 143,441 160,635 126,137

COSTS AND EXPENSES
General and
administrative 2,655,510 3,287,190 1,954,388 1,680,204
Loan Fee Amortization - 1,194,497 2,339,082 135,312
(Gain) / Loss on
Financial Instrument (1,441,234) 1,777,181
Operating 9,061,637 4,587,834 - -
Depreciation and
accretion 2,467,981 2,076,311 249,794 278,838
(Gain) / Loss on
foreign exchange (226,546) 7,739,985 648,805 (447,527)
----------------------------------------------------------------------------

NET PROFIT / (LOSS) (8,679,959) (18,047,451) (5,031,434) (1,520,690)

TAXES - 347,458 - -

NET PROFIT / (LOSS)
AFTER TAX (8,679,959) (18,394,909) (5,031,434) (1,520,690)

NET PROFIT / (LOSS)
PER SHARE (0.05) (0.14) (0.04) (0.01)

Deficit, beginning
of period (38,287,426) (19,892,517) (14,861,083) (13,340,393)
------------------------------------------------------
Deficit, end of
period (46,967,385) (38,287,426) (19,892,517) (14,861,083)
----------------------------------------------------------------------------
----------------------------------------------------------------------------



31-Mar-08 31-Dec-07 30-Sep-07 30-Jun-07

REVENUE $ $ - $ - $ -
Oil Sales
Other income
Interest income 379,350 455,865 355,920 177,232

COSTS AND EXPENSES
General and
administrative 1,675,593 2,795,777 989,702 1,527,583
Loan Fee
Amortization - -
(Gain) / Loss on
Financial Instrument
Operating -
Depreciation and
accretion 206,540 261,560 84,211 51,156
(Gain) / Loss on
foreign exchange 3,997,151 (230,551) (296,583) (1,988,448)
----------------------------------------------------------------------------

NET PROFIT / (LOSS) (5,499,934) (2,370,921) (421,410) 586,941

TAXES - - - -

NET PROFIT / (LOSS)
AFTER TAX (5,499,934) (2,370,921) (421,410) 586,941

NET PROFIT / (LOSS)
PER SHARE (0.05) (0.02) (0.00) 0.01

Deficit, beginning
of period (7,840,459) (5,469,538) (5,048,128) (5,635,069)
------------------------------------------------------
Deficit, end of
period (13,340,393) (7,840,459) (5,469,538) (5,048,128)
----------------------------------------------------------------------------
----------------------------------------------------------------------------





RESULTS OF OPERATIONS

During the three month period to March 31, 2009 total production amounted to 58,203 boe (2008 - NIL) with an average realised price of $43.78 per barrel, with the additional oil sales revenue being $0.23 million of price adjustment relating to 2008 sales. Other income relates to the rental of the second oil storage tank at Nigg to BP and ship to ship transfers at the Nigg deep water terminal.

For the three month period ended March 31, 2009, the Corporation had a net loss of $8.7 million compared to a net loss of $5.5 million for the three month period ended March 31, 2008. This loss is due primarily to the Beatrice operating costs for the period amounting to $9.1 million (2008 - NIL) ahead of switching on the Jacky production, depletion, depreciation and accretion charges for the period and the stock based compensation charge offset by a gain on financial instruments.

General and administrative expenses for the three month period ended March 31, 2009 before stock compensation charges and interest charges were $1.5 million compared to $1.7 million for the three month period ended March 31, 2008.

On March 11, 2009, the Corporation entered in to a "Window Forward Plus" contract with the Bank of Scotland to hedge circa 90% of the Corporation's known future US Dollar to British Pound Sterling exchange rate exposure. The contract ensures that the Corporation, which incurs a substantial amount of its operating expenditure in British Pounds Sterling, is able to lock in a rate of no worse than US$1.40:Pounds Sterling 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 US$1.29:Pounds Sterling 1.00 (the "Trigger" rate). Any strengthening of the US$/Pounds Sterling rate beyond the Trigger rate during any of the periods or "windows" between the transaction dates will lead to a rate of US$1.40:Pounds Sterling 1.00 being applied to that individual transaction. The contract covers $49 million equivalent of British Pounds Sterling expenditure. The subsequent weakening of the US Dollar has resulted in an unrealised gain on the contract of $1.5 million for the period ended March 31, 2009.

No options were exercised during the three month period to March 31, 2009. This compares with 330,000 options being exercised in the three months to March 31, 2008. In the three months to March 31, 2009, no new options were granted. The stock based compensation charge for the three month period ended March 31, 2009 was $1.1 million compared to a charge for the three month period ended March 31, 2008 of $0.6 million. This charge relates to options granted in previous quarters with the cost being amortised over the three year vesting period.

Depreciation, depletion and accretion for the three month period ended March 31, 2009 has increased to $2.5 million (2008 - $0.2 million) primarily as a result of accretion charges relating to the asset retirement obligations recognized for an exploration well drilled and the depletion charge against the fixed assets in line with production levels. The Corporation has an appraisal well planned for the second half of 2009 and therefore the accretion expense is expected to increase in the year.

LIQUIDITY AND CAPITAL RESOURCES

During the three months ended March 31, 2009 there was a cash outflow from operating, investing and financing activities of $14.0 million compared to a cash outflow from operating, investing and financing activities of $37.6 million for the corresponding period in 2008. The decrease is due to the significantly greater capital expenditure incurred on three wells drilled over the first quarter on 2008 and the drawdown on a portion of the Dyas loan in the first quarter of 2009 offset by Jacky and Carna expenditure and the operating loss at Beatrice. This trend is expected to be reversed now that Jacky production has commenced.

The production from Jacky and Beatrice was lower in the first quarter than anticipated with current production now exceeding forecasts. As a consequence a short term liquidity shortfall may occur prior to receipt of the proceeds from the improved production. Discussions are ongoing with a number of parties and management are confident that this short term deficit will be covered. Current production now exceeds forecasts.

Significant capital will be required to further the Corporation's anticipated development activities in 2009 and 2010 and these are expected to be met through a combination of existing cash resources, cash flows from production and selective farm-outs. The Corporation has an established track record in the equity markets and will be opportunistic in accessing further equity as and when such markets are once again open, however the Corporation is confident that it will be able to manage its portfolio in the absence of such funding for the foreseeable future.

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 US Dollars, the Board of the Corporation has agreed a hedging policy to mitigate foreign exchange rate risk on committed expenditure. On March 11, 2009 a series of foreign exchange contracts totalling $49 million was entered in to in accordance with the agreed hedging policy.

The Corporation is dependent upon the production rates and oil price to fund the current development program. The business will look to meet any liquidity shortfalls through securing working capital facilities, deferring of payments or the selected divestment of its portfolio. 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.

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.

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.

CRITICAL ACCOUNTING ESTIMATES AND CHANGES IN ACCOUNTING POLICIES

Management is required to make judgments, assumptions and estimates in the application of generally accepted accounting principles that have a significant impact on the financial results of the Corporation.

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.

The carrying value of property, plant and equipment is reviewed annually for impairment. Impairment occurs when the carrying value of the assets is not recoverable by the future undiscounted cash flows. The cost recovery ceiling test is based on estimates of proved 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.

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.

FUTURE ACCOUNTING PRONOUNCEMENTS

On January 1, 2009, the Corporation adopted the following Canadian Institute of Chartered Accountants ("CICA") Handbook Section: "Goodwill and Intangible Assets", Section 3064. The new standard replaces the previous goodwill and intangible asset standard and revises the requirement for recognition, measurement, presentation and disclosure of intangible assets. The adoption of this standard was applied retroactively and has had no material impact on the Corporation's financial statements.

In February 2008, the CICA's Accounting Standards Board confirmed that International Financial Reporting Standards ("IFRS") will replace Canadian GAAP in 2011. The Corporation is continuing to review this change in terms of its operational, reporting and accounting impact, including the preparation of required comparative information. The impact of IFRS on the Corporation's Financial Statements is not reasonably determinable at this time.

RELATED PARTY TRANSACTIONS

A Director of the Corporation is a partner in Burstall Winger LLP who acts as legal counsel for the Corporation. The amount of fees, measured at the exchange amount, paid to Burstall Winger LLP in the three month period to March 31, 2009 were $113,116 (2008 - $23,786).

INTERNAL CONTROLS OVER FINANCIAL REPORTING

There have been no changes to the Corporation's internal control over financial reporting during the three months ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.

COMMITMENT UPDATE

There have been no other new material commitments during the quarter ended March 31, 2009.

OUTSTANDING SHARE INFORMATION

As of May 28, 2009, there are 162,261,975 common shares of the Corporation outstanding and 172,506,475 common shares diluted. There are 10,244,500 options to purchase common shares outstanding.

READER ADVISORY

This news release contains certain forward-looking statements, including all statements which address activities, events or developments that Ithaca Energy expects, believes or anticipates will or may occur in the future. Such forward looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond Ithaca Energy's control and which are based on various assumptions (including assumptions with respect to (i) availability of funds; and (ii) future capital expenditures) which may prove incorrect. Such risks and uncertainties include, without limitation the impact of general economic conditions in the areas in which Ithaca Energy operates, civil unrest, industry conditions, changes in laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in commodity prices, foreign exchange or interest rates, stock market volatility and obtaining required approvals of regulatory authorities. Please refer to the Company's Annual Information Form for the year ended December 31st, 2008 and dated March 26, 2009 and available for viewing at www.sedar.com, for a list of additional risk factors. Ithaca Energy's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that Ithaca Energy will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to Ithaca Energy or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Ithaca Energy does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

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.

SOURCE: Ithaca Energy Inc.

Ithaca Energy
Iain McKendrick
Chief Executive Officer
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[e-mail]
Ithaca Energy
Steven Turner
Chief Financial Officer
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Pelham Public Relations
Charles Vivian
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[e-mail]
Pelham Public Relations
Phillip Dennis
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[e-mail]
Ambrian Partners Limited
Marc Cramsie
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