--Preparation of drilling plans for a second appraisal well to be drilled on the 70% owned Athena oil discovery. --Conducting pipeline survey and host modification study preparatory to application for field development at Athena. --Participation in a joint pre-unitization study at Barbara. --Interpretation of a newly shot 300 km2 3-D seismic program over 90% owned licenses in the Outer Moray Firth area. --Interpretation of a 360 km2 3-D seismic program over the Morpheus prospect in the Southern Gas Basin. --Farming out an interest at Morpheus in return for reimbursement of seismic costs and a future well. --Preparation to drill the 90% owned Basil oil prospect in the Inner Moray Firth.
--Strong working capital position of US$66.1 million --82.9 million common shares outstanding (87.3 million fully diluted)
Commenting on the results, Lawrie Payne, Chief Executive Officer, said: "'Having significantly strengthened the company's working capital position in December, 2006, Ithaca proceeded in the first quarter of 2007 to accelerate its development program by making arrangements for further drilling at Athena, preparing to drill Basil and participating in a pre-unitization agreement at Barbara. The Company is well positioned to execute its development and exploration program."
The Corporation has continued with the evaluation and exploration of the portfolio of UK oil and gas properties. The Corporation did not undertake any drilling activities in the quarter, but did complete an exploration well on its Basil oil prospect subsequent to the end of the quarter. Other activities in the quarter included the acquisition of additional licenses in the 24th licensing round, the continued progress of the Company's Athena project, which was drilled in 2006, and additional geological and geophysical processing work on 3D seismic shot in 2006 over the Company's Morpheus and Triton prospects.
In September 2006, Ithaca Energy secured the GSF Galaxy II jack-up drilling rig for two wells to be drilled in 2007 and the Byford Dolphin semi-submersible drilling rig under a one-well contract which is scheduled to drill a second appraisal well on Athena this summer and, on success, plans to case and suspend the well for completion for production at a later date. Subject to the results of the well and rig availability, a third well on Athena may be drilled in this calendar year. The first well to be drilled by the GSF Galaxy II was drilled in April 2007, the second is scheduled for the third quarter.
At the Company's 70% owned Athena oil project, Ithaca has completed a pipeline route survey between Athena and the Talisman Energy-operated Claymore oilfield facility. The purpose of the survey was to gather environmental and geotechnical data as an integral part of the environmental statement required as part of the consultative process prior to Field Development Plan submission, currently planned for Q3 2007.
Talisman and Ithaca have also jointly initiated engineering studies necessary for the provision of services to receive and process crude oil from Athena. Ithaca has a letter of intent for the use of the Byford Dolphin semi- submersible drilling rig to drill the Ithaca Energy's primary focus for the remainder of 2007 will be the appraisal and development of its 70% owned Athena oil field and pre-field development plan work on its 90% owned Basil oil discovery. In addition, the Corporation will continue its UK North Sea exploration and appraisal drilling program on its Morpheus, Carna, and Manuel prospects subject to rig availability and securing partner participation. To complete its 2007 development, appraisal, and exploration program, the Corporation has set a capital budget of 4 wells and $55 million.
Ithaca Energy has been able to execute its business plan for the UK North Sea in large part by its ability to access capital through the issuance of equity. The Corporation anticipates that no further equity issues will be required for its planned activities in 2007; however significant capital, beyond current resources, will be required to further the Corporation's anticipated development activities in 2008.
RESULTS OF OPERATIONS
The Corporation has had no revenue from operations to date. For the period ended March 31, 2007, the Corporation had a net loss of $123,181 compared to a net loss of $750,092 for the period ended March 31, 2006. This reduced loss is due to interest earned and foreign exchange gains made on unspent funds that the Company raised during 2006.
General and administrative expenses for three month period were $722,685 compared to $763,876 for the comparable period. The results include the Corporation's increased evaluation, acquisition and exploration activity in the UK North Sea, which is offset by the capitalization of certain costs related to exploration activities. Costs capitalized in the quarter amounted to $714,087 (2006 - $nil). The Corporation has been steadily increasing operations, and this has resulted in an increase in payroll and other administration costs. The Corporation continued to issue stock options during the year as its share equity base expanded and as it added new employees. The Corporation issued stock options to Directors and employees in January 2007, which together with the charge arising from the vesting of options issued in August 2006, resulted in a stock based compensation charge of $269,586 (2006 $42,400). Stock-based compensation expense is not expected to increase as rapidly in 2007 as in prior years.
Interest income in the periods resulted from interest on bank accounts and short-term deposits, as the Corporation had cash balances due to funds raised. The income is significantly higher in the first quarter than in the previous period as the Corporation was able to invest a portion of the funds raised in the initial public offering and the offering completed in December 2006. The Corporation holds the majority of its cash reserves in currencies other than the US$, and is therefore exposed to losses arising from exchange rate fluctuations.
Amortization and accretion has increased to $58,898 (2006 - $13,629) primarily as a result of an accretion charge relating to the asset retirement obligation recognized for the Athena well drilled in 2006. The Corporation has an ongoing drilling plan for 2007 and therefore the accretion expense is expected to increase over the remainder of the year.
LIQUIDITY AND CAPITAL RESOURCES
Total cash inflow from financing activities in the period ended March 31, 2007 was $nil (2006 - $4,374,223) as the Corporation has sufficient cash resources available to fund all activities currently planned for the short to medium term.
During the period ended March 31, 2007 there was a cash outflow from operating activities of $913,765 compared to a cash outflow from operating activities of $1,695,161 for the corresponding period in 2006. This was primarily due to foreign exchange gains and interest income earned on the funds raised in the 2006 equity offerings.
The Corporation's prospects are dependent upon the investment of significant capital sums into its development and exploration projects. With the capital raised pursuant to the offerings and the UK Placings, management believes that the Corporation will be able to exploit opportunities in its existing portfolio, and also to pursue new ventures that are consistent with its business plan. The Corporation expects to continue to develop the existing licenses held and to acquire new licenses through participation in future licensing rounds and farm-ins from third parties.
Ithaca Energy is an oil and gas exploration and development corporation active in the United Kingdom's Continental Shelf ('UKCS'). Exploration and development activities are focused on the Inner and Outer Moray Firth, the Central and Southern Gas Basin areas of the UKCS. The goal of Ithaca Energy in the near term is to achieve oil production from the development of existing discoveries on licenses held by the Corporation, to originate and participate in exploration on licenses held by the Corporation with the potential to make significant contributions to future production, and to consider other opportunities for growth as they are presented to the Corporation. The Corporation is targeting first oil production from its 70% owned Athena field and first gas from its 20% (6.7% expected utilization) interest in the Barbara gas field to commence in 2009.
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