NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE
UNITED STATES


Ithaca Energy Inc. (TSX VENTURE:IAE)(AIM:IAE) announces its financial results
for the twelve months ended December 31, 2010 and the Company's independently
evaluated reserves as at December 31, 2010. A presentation is available on the
Company's website at www.ithacaenergy.com with further details regarding this
release.




HIGHLIGHTS                                                                  
                                                                            
For the year ended December 31, 2010                                        
                                                                            
Financial                                                                   

--  Earnings before income tax US$38.0 million (2009: US$7.9 million) 

--  Net Earnings US$54.0 million after recognizing deferred/future tax asset
    (2009: US$7.9 million) 

--  Record Cashflow from Operations of US$94.6 million (2009: US$53.9
    million) 

--  Cash US$201.9 million , inclusive of US$6.3 million restricted cash
    (2009: US$35.5 million) 

--  Netback US$57 / boe (2009: US$37 / boe) 

--  approx. US$150 million cash raised through the issue of 92.7 million
    common shares 

--  Signed and completed US$140 million senior debt facility - no debt drawn
    at December 31, 2010 

--  Tax losses attributable to upstream oil and gas activities of US$215.7
    million mitigating impact of UK tax changes 

Reserves                                                                    

--  Net 1P Reserves 22.30 million barrels of oil equivalent ("mmboe") (2009:
    15.99 mmboe) 

--  Net 2P Reserves 46.05 mmboe (2009: 37.19 mmboe) 

--  Net 2P Reserves Pre-Tax Net Present Value US$912.37 million (2009:
    US$768.35 million) 



The following table shows the movement of reserves through 2010 and also shows
the movement versus the December 31 2009 Sproule report.




----------------------------------------------------------------------------
                                                                 Net Present
                                                                       Value
                                                                      Dec 31
                                                                    2010(ii)
                                  Net Reserves  Net Reserves        (US$ MM)
                    Net Reserves        Apr 30        Dec 31      Before Tax
                     Dec 31 2009       2010(i)      2010(ii)   discounted at
Category                 (mmboe)       (mmboe)       (mmboe)             10%
----------------------------------------------------------------------------
Proved, 1P                 15.99         20.88         22.30  $       339.30
----------------------------------------------------------------------------
Probable                   21.20         21.09         23.75  $       573.07
----------------------------------------------------------------------------
Proved plus                                                                 
 Probable, 2P              37.19         41.96         46.05  $       912.37
----------------------------------------------------------------------------
Possible                   41.98         35.00         40.07  $       997.09
----------------------------------------------------------------------------
Proved plus                                                                 
 Probable plus                                                              
 Possible, 3P              79.17         76.96         86.12  $      1909.46
----------------------------------------------------------------------------
(i) post successful Stella appraisal well  (ii) post acquisition of SNS     
assets from GDF                                                             



Since the last reserves evaluation at April 30 2010, post the successful Stella
appraisal well, net Proved and Probable ("2P") reserves rose approx. 10%, from
41.96 mmboe to 46.05 mmboe as at December 31 2010. The major contributory factor
was the acquisition of the gas basin assets from GDF Suez E&P UK Ltd however
Jacky also had a modest upward revision, while Athena and Stella area assets
remained unchanged. 


No account has been taken of the Cook and Maclure acquisition of assets from
Hess. Integration of the reserves associated with the Cook and Maclure
acquisition is pending completion of the transaction. 


Other ongoing activities including the drilling of a second production well at
Jacky, the J03 well, and the results of drilling the final development wells at
Athena may precipitate an interim reserves evaluation in due course.




Operational                                                                 

--  Combined production from Beatrice and Jacky averaged 9,336 barrels of
    oil per day ("bopd") gross (4,485 bopd net to Ithaca) over the year as
    measured at the Nigg storage facility. The addition of Anglia and Topaz
    production from mid December 2010 increased overall production to 4,529
    bopd net to Ithaca 
    
--  Successfully completed the first wells of the Beatrice Alpha well
    workover program, increasing production by approximately 100% in each
    well 
    
--  Drilled a successful appraisal well and sidetrack on the Stella field
    proving the presence of significant additional volumes of hydrocarbon
    and excellent quality reservoir. As a result, Total Proved ("1P")
    reserves post the well, increased by 30.6% from 15.99 mmboe to 20.88
    mmboe 
    
--  Received Field Development Plan approval from the UK Department for
    Energy and Climate Change ("DECC") for the Athena oil field on September
    21 2010 
    
--  Awarded, as operator, Block 29/10d in the UKCS 26th Seaward Production
    License Round, expanding the Company's portfolio in the Greater Stella
    Area 
    

Commercial                                                                  

--  Completed a transaction to acquire certain UK North Sea gas interests
    from GDF SUEZ E&P UK Ltd for an adjusted cash consideration of GBP 6.7
    million (approximately $10.5 million)(the "GdF Acquisition") with an
    effective date of January 1, 2010. The GdF Acquisition included operated
    interests in the producing Anglia Field, the Garnet and Opal
    discoveries, and a non operated interest in the producing Topaz Field. 

SIGNIFICANT POST 2010 EVENTS                                                

--  Completed drilling of a water injection well for the Athena field
    development, the first of a 180 day campaign of drilling and completion
    activities. The drilling of the final production well for the
    development of the Athena field is in advanced stages 
    
--  Commenced the drilling of a second production well, J03, on the Jacky
    field 
    
--  Lawrie Payne, Non-Executive Chairman of the Board, retired and resigned
    from the Board of Directors and was replaced by Jack C. Lee 
    
--  Entered into an agreement to acquire a 28.46% non-operated interest in
    the Cook oil field and a 7.41% non-operated interest in the Maclure oil
    field from Hess Limited ("Hess") for a consideration of $74.5 million
    and the transfer from Ithaca to Hess of a 10% interest in each of
    exploration Blocks 42/25b, 43/16a and 43/21c in the Southern North Sea
    (the "Cook Acquisition"). The transaction is expected to complete in Q3
    2011 with an effective date of January 1, 2011 
    
--  Purchased two 'Put Options' for a portion of 2010 production; 804,500
    barrels of oil with a floor price of US$105 per barrel and 300,000
    barrels of oil with a floor price of US$115 per barrel 
    
--  Signed an Earn In agreement with CMI to drill an appraisal well on the
    Hurricane discovery. CMI will pay 40% of gross Hurricane appraisal well
    costs in exchange for a 31% equity interest in Block 29/10b. In
    addition, upon successful appraisal, CMI will pay 40% of gross costs of
    a drill stem well test of any sidetrack. Ithaca anticipates that the
    appraisal well will be commenced in Q4 2011. 



Iain McKendrick, CEO, commented, 

"The Company has transformed its financial position over the past year. Earnings
of US$54million combined with a US$150 million equity raise have delivered a
strong balance sheet with cash of over US$200 million. These resources, together
with the Company's undrawn debt facility underpin the execution of the Company's
ongoing development projects, Athena and Stella, and provide a platform from
which to continue with the delivery of its successful asset acquisition
strategy."


Notes:

The Company currently has 258,535,295 Common Shares outstanding with one voting
right per Common Share. There are no Common Shares held by Ithaca in treasury.
The total number of voting shares in the Company is therefore 258,535,295. This
figure of 258,535,295 Common Shares may be used by shareholders in the Company
as the denominator for the calculations by which they will determine if they are
required to notify their interest in, or a change in their interest in, the
share capital of the Company under the UK Financial Services Authority's
Disclosure and Transparency Rules.


The Company's petroleum and natural gas reserves (the "reserves") were
independently evaluated by Sproule (www.sproule.com) (the "Sproule Report") in
accordance with the Canadian Oil and Gas Evaluation Handbook ("COGEH") reserves
definitions and evaluation practices and procedures as specified by National
Instrument 51-101 ("NI 51-101"). The evaluation uses Sproule's forecast prices
and costs at December 1, 2010. 


The Company's Form 51-101 F1 Statement of reserves data for the year ended
December 31, 2010 ("Statement of Reserves Data"), which includes the disclosure
and reports relating to reserves data and other oil and gas information along
with the Form 51-101F2 Report on Reserves Data by Sproule and Form 51-101F3
Report of Management and Directors on Reserves Data and Other Information are
contained in the Company's Annual Information Form for the year ended December
31, 2010 (the "AIF") which is available for review at www.sedar.com.


Further details on the above are provided in the Consolidated Financial
Statements, Management's Discussion and Analysis, and AIF for the year ended
December 31, 2010, which have been filed with securities regulatory authorities
in Canada. These documents are available on the System for Electronic Document
Analysis and Retrieval at www.sedar.com and on the Company's website:
www.ithacaenergy.com.


Notes to oil and gas disclosure: 

In accordance with AIM Guidelines, Hugh Morel, BSc Physics and Geology (Durham),
PhD Hydrogeology (London) and senior petroleum engineer at Ithaca Energy is the
qualified person that has reviewed the technical information contained in this
press release. Dr Morel has 30 years operating experience in the upstream oil
industry.


About Ithaca Energy:

Ithaca Energy Inc. and its wholly owned subsidiary Ithaca Energy (UK) Limited
("Ithaca" or "the Company"), 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.


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 "anticipate", "continue",
"estimate", "expect", "may", "will", "project", "plan", "should", "believe",
"could", "target" and similar expressions, and the negatives thereof, are
intended to identify forward-looking statements. Such statements are not
promises or guarantees, and are subject to known and unknown risks and
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in such forward-looking statements or
information. 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. 


The term "boe" may be misleading, particularly if used in isolation. A boe
conversion 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. 


ITHACA ENERGY INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS 

FOR THE YEAR ENDED DECEMBER 31, 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 year ended December 31, 2010. The information is provided
as of April 21, 2011. The 2010 results have been compared to the results of
2009. This discussion and analysis should be read in conjunction with the
Corporation's consolidated financial statements as at December 31, 2010 and 2009
together with the accompanying notes, MD&A and Annual Information Form ("AIF")
for the 2010 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 boe' referred to in this MD&A are not prescribed by 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 of performance prepared in accordance with GAAP. See "Results of
Operations" section for details.


'Cash flow from operations' referred to in this MD&A is not prescribed by GAAP.
The Corporation uses this measure to help evaluate its performance. As an
indicator of the Corporation's performance, cash flow from operations should not
be considered as an alternative to, or more meaningful than, cash flows from
operating activities as determined in accordance with GAAP. The Corporation's
determination of cash flow from operations does not have any standardized
meaning and therefore may not be comparable to similar measures presented by
other companies. The Corporation considers cash flow from operations to be a key
measure as it demonstrates the Corporation's ability to generate the cash
necessary to fund operations and support activities related to its major assets.
Cash flows from operations are determined by adding back changes in non-cash
operating working capital to cash provided by operating activities.


BOE PRESENTATION

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"). The term boe may be misleading, particularly if used in isolation.
A boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not represent
a value equivalency at the wellhead. 


2010 HIGHLIGHTS 

Ithaca achieved the following highlights during 2010:

Financial 



--  Earnings before income tax $38.0 million (2009 $7.9 million) 

--  Net Earnings $54.0 million after recognition of a future tax asset (2009
    $7.9 million) 

--  Record Cashflow from Operations of $94.6 million (2009 $53.9 million) 

--  Cash $201.9 million , inclusive of $6.3 million restricted cash (2009
    $35.5 million) 

--  Netback $57 / boe (2009 $37 / boe) 

--  Closed new equity raise, generating over $150 million  

--  Signed and completed $140 million senior debt facility (the "Credit
    Facility") - no debt drawn at December 31, 2010 

--  Tax losses attributable to upstream oil and gas activities of $215.7
    million (2009 $233.0 million) 



Rising Earnings before income tax in 2010 compared to the prior year were driven
by rising production from Beatrice and Jacky, a higher realized average oil
price of $80.37 / bbl ($68.65 / bbl in 2009) and a reduction in operating and
depletion, depreciation, and amortization ("DD&A") costs. 


The strong cash flow from operations combined with the equity raise proceeds
increased the Company's overall cash balance to $201.9 million at December 31,
2010.


The combination of the above factors has placed the Company in a strong
financial position, with current projects fully funded through to first
production.




Operational                                                                 
                                                                            
Beatrice & Jacky                                                            

--  Combined production from Beatrice and Jacky averaged 9,336 barrels of
    oil per day ("bopd") gross (4,485 bopd net to Ithaca) over the year as
    measured at the Nigg storage facility. 
    
--  Production from Beatrice Alpha was reinstated in March 2010 after
    repairs and modifications to the vessel protection systems were
    completed. 
    
--  As a result of the well intervention program that occurred from Q4 2009
    to Q1 2010 the production from the Beatrice Bravo facility was
    increased. 
    
--  In May coiled tubing work commenced on the Beatrice Alpha platform to
    undertake preparatory 'clean up' work on a number of 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.  
    
--  In Q3 2010, the first of the Beatrice Alpha well workover program was
    completed (the A04 well) increasing production on the well by 100%. In
    September 2010 production from Jacky was halted temporarily to allow a
    chemical 'squeeze' operation which has successfully protected the
    reservoir from potential scale damage and maintained productivity. 
    
--  In Q4 2010, activities commenced to workover the second well of the five
    well campaign (Beatrice Alpha well A23). Stable production was
    reinstated by the end of 2010 and increased production by approximately
    115% 
    
--  In December the Corporation announced that in Q1 2011 it planned to
    drill a second production well on the Jacky field to access additional
    reserves. Daily production from this well is expected to initially
    exceed 5,000 bopd (2,375 bopd net to Ithaca) when the well is expected
    to come on stream in Q2 2011. 
    

Stella                                                                      

--  In February 2010 the Galaxy II rig commenced drilling at the Stella
    appraisal well location in block 30/6a. In April 2010 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 connected 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 program.  
    
--  Following a successful drill stem test of the Stella appraisal well and
    subsequent interim reserves audit, the Company announced a significant
    increase in reserves. Total Proved ("1P") reserves increased by 30.6%
    from 15.99 million barrels of oil equivalent ("mmboe") to 20.88 mmboe
    and total Proved plus Probable ("2P") reserves increased by 12.8% from
    37.19 mmboe to 41.96 mmboe.  
    
--  In September 2010 the earn in agreement signed on October 27, 2009
    between Ithaca and Challenger Minerals (North Sea) Limited ("CMI") was
    completed. Under the terms of the earn in CMI paid 27% of gross Stella
    appraisal well costs in exchange for an 18% equity interest in the
    Stella and Harrier discoveries, thereby carrying a part of Ithaca's
    share of drilling costs. In addition, due to the successful appraisal of
    Stella, CMI will carry Ithaca on a further Stella or Harrier development
    well for up to GBP 2 million ($3.2 million) or 9%, whichever is the
    lesser. The revised Ithaca interests in the Stella and Harrier
    discoveries are now 50.33%. 
    

Athena                                                                      

--  On September 21, 2010, Field Development Plan approval was received from
    the UK Department for Energy and Climate Change ("DECC") for the Athena
    oil field. 
    
--  Key contracts on the Athena development were awarded through 2010,
    including the charter of the Floating Production, Storage and Offloading
    ("FPSO") vessel 'BW Carmen' (now renamed 'BW Athena') from BW Offshore;
    the provision of drilling management services and the supply of the
    Sedco 704 semi-submersible drilling rig from Applied Drilling Technology
    International ("ADTI") (a subsidiary of Transocean Ltd.); and the
    installation of subsea equipment and the FPSO mooring system from Bibby
    Offshore Limited. 
    

UKCS 26th Seaward Production License Round                                  

--  In November 2010, the Corporation was successful in the UKCS 26th
    Seaward Production License Round, expanding the Company's portfolio in
    the Greater Stella Area. Ithaca was offered, as operator, one new
    license from the 26th Round, namely Block 29/10d (the "block"). The
    block lies in the Greater Stella Area and is neighbour to Block 29/10b
    (Hurricane discovery) and Block 30/6a (Stella and Harrier discoveries).
    Ithaca has identified a large structure encompassed by the block which
    is known as the Helios discovery. 

Corporate                                                                   

--  In May 2010, the Company announced the appointment of Ron Brenneman,
    formerly Chief Executive Officer of Petro-Canada, as non-executive
    director of the Company. 
    
--  In July 2010, the Corporation signed and completed the Credit Facility
    for up to $140 million with the Bank of Scotland Plc as Lead Arranger.
    The loan term is up to five years and in accordance with normal industry
    borrowing base facilities. 
    
--  In July the Company completed a "bought deal" equity issue, with a
    syndicate of underwriters led by CIBC World Markets, of 47.6 million
    common shares in Ithaca at a price of C$1.70 per common share for
    aggregate gross proceeds of C$81 million (the "Bought Deal Offering").
    At the same time completion took place of a private placement of 45.1
    million common shares in Ithaca to purchasers in the United Kingdom at a
    price of GBP 1.07 per common share (approximately equivalent to C$1.70
    per common share) for aggregate proceeds of approximately C$77 million
    (the "Private Placement"). Together, the equity issues generated gross
    proceeds of C$158 million (approximately $153 million). 
    
--  In August 2010 an agreement was entered into to acquire certain UK North
    Sea gas interests from GDF SUEZ E&P UK Ltd for a cash consideration of
    GBP 11.25 million (approximately $16.9 million) (the "GdF Acquisition").
    The GdF Acquisition included operated interests in the producing Anglia
    Field, the Garnet and Opal discoveries, and a non operated interest in
    the producing Topaz Field. The Corporation completed the transaction on
    December 17, 2010 for an adjusted cash consideration of GBP 6.7 million
    (approx $10.5 million) with an effective date of January 1, 2010. The
    adjustment results from free cash flow generated by strong production
    throughout 2010 since the effective date. The Company believes the GdF
    Acquisition has the potential to create significant additional value
    through the further exploitation and optimization of the acquired
    interests. 
    
--  In September 2010 the Company entered into an agreement with Gemini Oil
    & Gas Fund II, L.P. ("Gemini") in relation to the Company's interest in
    the Athena field (the "Agreement"). The Agreement provided that the
    Company would not make any payment to Gemini in relation to proceeds
    received by the Company as part of the previously announced Athena asset
    sale of interests in 2008 and 2009 involving transactions which relate
    to certain assets sold by the Company to Dyas UK Limited. In exchange
    for and in consideration of Gemini's waiver of any right to proceeds
    from the disposal of equity interest in the Athena discovery and in
    substitution for any previously awarded or agreed warrants, Ithaca
    granted to Gemini warrants to acquire up to 2,500,000 Common Shares in
    Ithaca. The warrants were available for exercise at a price of C$2.25
    per share on or before March 21, 2011. The total fair value attributed
    the warrants issued in the quarter was $0.3 million. In addition to
    these terms, the Agreement terminated all rights that Gemini has in
    respect of the Company's interests. 
    

HIGHLIGHTS SUBSEQUENT TO YEAR END:                                          

--  In January 2011, preparation works commenced to re-certify existing
    equipment and install new equipment on the FPSO BW Athena at dockside in
    Dubai. All work is anticipated to be completed in Q3 2011 allowing the
    vessel to return to UK waters and arrive on location at Athena at end Q3
    2011. 
    
--  In February 2011, Lawrie Payne, Non-Executive Chairman of the Board,
    notified the Company of his intention to retire from service of the
    Company and resigned from the Board of Directors effective February 22,
    2011. Jack C. Lee succeeded Lawrie Payne as Non-Executive Chairman
    effective as of the same date. 
    
--  In February 2011 the Company successfully completed the drilling of a
    water injection well for the Athena field development. The well was
    drilled down flank from three successful appraisal wells and was the
    first well of a 180 day campaign of drilling and completion activities. 
    
--  In March 2011 the Sedco 704 semi submersible drilling unit commenced the
    drilling of the final production well for the development of the Athena
    field. The well is being drilled from the Athena drill centre and is the
    final well to be drilled. As at the date hereof, the well is progressing
    on schedule. The well has been directionally drilled to the north west
    of the field and has entered the top reservoir (Top Scapa A sands).
    These operations precede subsea equipment installation and hook-up of
    the BW Athena FPSO later in the year. 
    
--  In March 2011 the Energy Enhancer jack-up drilling unit commenced
    drilling on a second production well on the Jacky field. The well is
    being drilled to access additional reserves and Increase production as
    part of a field management strategy. The drilling unit was positioned
    over the Jacky platform to drill from an existing spare wellbay to
    facilitate early tie in to the existing production stream. 
    
--  In March 2011 mechanical issues were experienced on the Energy Enhancer
    jack-up drilling unit that is currently drilling the J03 well on the
    Jacky field. This caused an increase in the time that production was
    suspended from the J01 well to complete the 'top hole section' of the
    J03 well. Following successful repair to the drilling mud handling
    system onboard the rig and completion of the top hole section,
    production from the J01 well was reinstated by the end of March. 
    
--  In March 2011 Gemini exercised all warrants granted to acquire 2,500,000
    common shares of the Company at C$2.25 per share. 
    
--  In April 2011 the Corporation entered into an agreement to acquire a
    28.46% non-operated interest in the Cook oil field and a 7.41% non-
    operated interest in the Maclure oil field from Hess Limited ("Hess")
    for a consideration of $74.5 million and the transfer from Ithaca to
    Hess of a 10% interest in each of exploration Blocks 42/25b, 43/16a and
    43/21c in the Southern North Sea (the "Cook & Maclure Acquisition"). The
    acquisition of Maclure is subject to pre-emption within 30 days of
    notification to other parties in the Maclure field. The Company has
    commissioned Sproule International Ltd ("Sproule") to provide a Reserves
    Audit Opinion on Cook and Maclure. The opinion from Sproule is
    anticipated in mid May, 2011 and, on receipt, the Company expects to
    make a further, more detailed announcement including information on
    reserves and other potential upsides associated with the Cook & Maclure
    Acquisition together with details, if any, of pre-emption by any Maclure
    parties. The transaction is expected to complete in Q3 2011 with an
    effective date of January 1, 2011. 
    
--  In April 2011 the Company signed an earn in agreement with CMI to drill
    an appraisal well on the Hurricane discovery. Under the terms of the
    agreement CMI has agreed to pay a share of the initial well costs in
    return for an option, exercisable within 90 days of abandonment or
    suspension of the initial appraisal and any sidetrack well, to acquire
    an interest in Block 29/10b. CMI will pay 40% of gross Hurricane
    appraisal well costs in exchange for a 31% equity interest in Block
    29/10b, thereby carrying a part of Ithaca's share of all costs of
    drilling an initial appraisal well. In addition, upon successful
    appraisal, CMI will pay 40% of gross costs of a drill stem well test of
    any sidetrack. All additional costs, including those for planned
    sidetrack drilling, shall be apportioned such that CMI shall pay its 31%
    pro rata share. The transaction is subject to agreed 'turnkey' terms
    with ADTI for the provision of a suitable drilling unit and well
    management services. Upon agreement of 'turnkey' terms and provision of
    a suitable rig, Ithaca anticipates that the appraisal well will be
    commenced in Q4 2011.  
    
--  In April 2011 both downhole electrical submersible pumps ("ESP") in the
    Jacky production well, J01, failed. Technical experts confirmed that
    both ESP units developed electrical faults under routine operations, and
    must be replaced. The well is now free flowing and gross production from
    the J01 well following this event has reduced to approximately 700
    barrels of oil per day ("bopd")(approximately 335 bopd net to Ithaca);
    prior to this, under ESP support gross production was approximately
    2,800 bopd (1,330 bopd net to Ithaca) as measured at the Nigg storage
    facility. The Company intends to continue to free flow the J01
    production well until the J03 well has reached the target reservoir
    formation, the Beatrice "A" Sand, and has been completed. This operation
    is anticipated to last until mid May. The Northern Enhancer rig
    (currently located over the Jacky platform) will then be utilised to
    undertake a workover operation to replace the failed ESPs in the J01
    production well; this is expected to take a further 15 days. Production
    from the J03 well is planned to be optimised throughout the J01 work
    over operation period. 



RESULTS OF OPERATIONS

Oil and gas sales revenue has increased 31% to $132.4 million. This was due to
an increase in total net production, an increase in average realized prices, and
the addition of gas sales from the Anglia and Topaz fields from December 17,
2010. Oil production has increased 11% from 4,042 bopd in 2009 to 4,485 bopd for
2010 predominantly due to a full year of production on Jacky compared to less
than 9 months of production in 2009 (Jacky achieved first oil in April 2009) and
optimization of production on Beatrice. The Corporation has also benefited from
an increase in average realized oil prices of over 17% from $68.65/bbl in 2009
to $80.37/bbl, due to an increase in the 'spot' Brent oil price in the year. The
acquisition of the producing gas assets from GDF SUEZ E&P UK Ltd that completed
in December 2010 also contributed to increased revenue in 2010.


Operating costs have decreased 18% in 2010 to $37.9 million. On a per barrel of
oil equivalent basis, operating costs moved from $31 / boe in 2009 to $23 / boe
in 2010. This rate has reduced steadily through the reinstatement of Beatrice
Bravo production, the start-up of Jacky production in April 2009, and the
continuing focus on optimisation of production through the workover program on
the shared operating costs centre of Beatrice and Jacky. 


General and administrative ("G&A") costs have decreased 49% in 2010 to $3.4
million. Tight cost control combined with increased capitalization of costs
associated with higher levels of project work has delivered the reduction in
costs charged to the income statement. 


DD&A expense for the year has decreased 6% in 2010 to $50 million. Although
production has increased year on year, a reduction in expense has been achieved
as a result of a decrease in the depletion rate per barrel of oil and gas
properties from $35 / boe to $30 / boe due to the increases in proved reserves
reported in 2010. 


The Corporation recorded a $5.1 million loss on derivatives for the year ended
December 31, 2010 (2009: $8.1 million gain). $3.1 million of the loss resulted
from a currency instrument put in place to remove the currency fluctuation risk
between closing of the $150 million equity raise and receipt of the funds. This
objective was achieved however GAAP necessitated that the proceeds were recorded
as $153.2 million and $3.1 million was recorded as a one-off derivatives loss. A
loss of $2.0 million was also generated from the foreign currency instrument
taken out in the year which ensured Sterling required to fund operating costs
was available at a rate of no worse than USD1.60 / GBP 1.00.


In the year ended December 31, 2010, a charge of $1.2 million (2009 - $0.6
million) was recorded for stock based compensation. The increase in stock based
compensation charged relates to an increase in staff numbers combined with the
issue of 10,100,000 options during 2010. 


The reduction in financing, interest and bank charges in the year ended December
31, 2010 is due to the repayment of all outstanding debt in 2009. From Q2 2010
charges have included amortization of fees in relation to the Credit Facility.


At the year end the Corporation recognized a derivative financial instrument
liability of $4.4 million in respect of the marking to market of a gas sales
contract acquired as part of the GDF Acquisition. This has no impact on Earnings
for the year.


A future tax asset of $16 million has been recognized in the year, arising from
a combination of accumulated tax losses and accelerated capital allowances.
While the company was loss making, it was not prudent to recognize a future tax
asset as it was more likely than not that the asset would not be realized.
However as a result of the last two years of earnings history and with earnings
forecast to continue, it is appropriate to recognize the asset in 2010.


All of the above contributed to Earnings before income tax of $38.0 million and
Net Earnings of $54.0 million for the year ended December 31, 2010. This was
achieved through the building of production levels, strong commodity prices and
successful reductions in operating and depletion costs per boe in the year. This
compared to Net Earnings of $7.9 million in 2009, a period with lower commodity
prices, higher unit operating costs 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:




                       31/12/2010    30/09/2010    30/06/2010    31/03/2010 
                                                                            
                            $'000         $'000         $'000         $'000 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
REVENUE                                                                     
  Oil & Gas Sales          33,721        35,434        33,094        30,102 
  Other income                539           531         1,035           665 
 Interest income               56            50             3             2 
                           34,316        36,015        34,133        30,769 
                                -             -             -             - 
COSTS AND EXPENSES              -             -             -             - 
 General and                                                                
  administrative              689         1,166           740           776 
 Operating                  9,460        10,241         9,460         8,689 
 DD&A                      12,350        13,287        13,104        11,248 
 (Gain) / Loss on                                                           
  foreign exchange           (990)       (1,766)          362         1,576 
 Revaluation of Nigg                                                        
  Heel of Tank                142           191             5          (184)
 (Gain) / Loss on                                                           
  Financial                                                                 
  Instruments                 439         1,936           582         2,158 
 Stock based                                                                
  compensation                304           433          (640)        1,151 
 Interest and bank                                                          
  charges                     196            77             4             4 
                    --------------------------------------------------------
                           22,590        25,565        23,617        25,418 
                    --------------------------------------------------------
                                                                            
EARNINGS / (LOSSES)                                                         
 BEFORE TAX                11,726        10,450        10,516         5,351 
                                -             -             -             - 
INCOME TAXES -                                                              
 current                      (80)                                          
INCOME TAXES -                                                              
 future                    16,074             -             -             - 
                                -             -             -             - 
                    --------------------------------------------------------
NET EARNINGS               27,720        10,450        10,516         5,351 
                    --------------------------------------------------------
                                -             -             -             - 
NET EARNINGS /                                                              
 (LOSS) PER SHARE            0.11          0.05          0.06          0.03 
                                -             -             -             - 
Deficit, beginning                                                          
 of period                 (4,114)      (14,564)      (23,886)      (29,236)
                                -             -             -             - 
                    --------------------------------------------------------
Surplus / (Deficit)                                                         
 end of period             23,606        (4,114)      (14,564)      (23,886)
                    --------------------------------------------------------

                    31/12/2009(i) 30/09/2009(i) 30/06/2009(i) 31/03/2009(i) 
                                                                 (Restated) 
                            $'000         $'000         $'000         $'000 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
REVENUE                                                                     
  Oil & Gas Sales          33,850        36,375        28,280         2,776 
  Other income              5,809           924         1,477           970 
 Interest income               16            96           146            92 
                           39,676        37,395        29,903         3,837 
                                -             -             -             - 
COSTS AND EXPENSES              -             -             -             - 
 General and                                                                
  administrative             (447)        2,500         1,918         2,644 
 Operating                 13,665         8,712        11,724        12,211 
 DD&A                      12,894        20,379        17,585         2,468 
 (Gain) / Loss on                                                           
  foreign exchange          2,319         2,051          (891)         (227)
 Revaluation of Nigg                                                        
  Heel of Tank               (363)           (4)          484             - 
 (Gain) / Loss on                                                           
  Financial                                                                 
  Instruments              (5,361)        4,325        (5,602)       (1,441)
 Stock based                                                                
  compensation               (600)          468           332           438 
 Interest and bank                                                          
  charges                      (0)          108           573            12 
                    --------------------------------------------------------
                           22,107        38,540        26,123        16,104 
                    --------------------------------------------------------
                                                                            
EARNINGS / (LOSSES)                                                         
 BEFORE TAX                17,569        (1,145)        3,780       (12,267)
                                -             -             -             - 
INCOME TAXES -                                                              
 current                                                                    
INCOME TAXES -                                                              
 future                       (81)            -             -             - 
                                -             -             -             - 
                    --------------------------------------------------------
NET EARNINGS               17,488        (1,145)        3,780       (12,267)
                    --------------------------------------------------------
                                -             -             -             - 
NET EARNINGS /                                                              
 (LOSS) PER SHARE            0.11 -        0.01          0.02 -        0.08 
                                -             -             -             - 
Deficit, beginning                                                          
 of period                (46,724)      (45,580)      (49,360)      (37,093)
                                -             -             -             - 
                    --------------------------------------------------------
Surplus / (Deficit)                                                         
 end of period            (29,236)      (46,724)      (45,580)      (49,360)
                    --------------------------------------------------------
(i) 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 Jacky field commenced its first oil production along with the
    restart of production from the Beatrice Bravo facility in April 2009. 
    
--  The optimization of production on Beatrice Bravo and Alpha through the
    workover campaigns. 
    
--  Fluctuations in underlying commodity prices. Commodity prices have
    generally risen through the periods in which the Corporation had
    production. The Corporation has utilized forward sales contracts and
    foreign exchange contracts to take advantage of higher commodity prices
    while reducing the exposure to price volatility. These contracts can
    cause volatility in 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. 



FOURTH QUARTER 

Oil and gas sales revenue decreased less than 1% to $33.7 million from Q4 2009.
The decrease was due to a 19% decrease in total net oil production to 3,966
bopd, predominantly due to the natural decline of production on Jacky, offset by
a 21% increase in average realized oil prices to $90.25 / bbl and the addition
of gas production from the producing gas assets acquired from GDF SUEZ E&P UK
Ltd that completed on December 17, 2010.


No significant transactions or adjustments occurred in Q4 2010 outwith the
normal course of business.


SELECTED ANNUAL INFORMATION 

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


The following table sets forth selected consolidated financial information of
the Corporation for its three most recently completed fiscal years. 




----------------------------------------------------------------------------
Year ended December 31,                                                     
($'000)                                             2010      2009      2008
----------------------------------------------------------------------------
Total revenues                                   135,233   110,812     3,282
----------------------------------------------------------------------------
Net Earnings                                      54,037     7,938  (30,447)
----------------------------------------------------------------------------
Total assets                                     561,851   309,140   357,670
----------------------------------------------------------------------------
Total long-term liabilities                       28,118    10,674    72,745
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Net gain / (loss) per share ($)                     0.27      0.05    (0.23)
----------------------------------------------------------------------------
Net gain / (loss) per share diluted basis ($)       0.26      0.05    (0.23)
----------------------------------------------------------------------------



LIQUIDITY AND CAPITAL RESOURCES 

As at December 31, 2010, Ithaca had working capital of $224.9 million including
a free cash balance of $195.6 million. Available cash has been, and is
currently, invested in money market deposit accounts with the Bank of Scotland.
Management has received confirmation from the financial institution that these
funds are available on demand. The restricted cash of $6.3 million comprises
$5.9 million currently held by the Bank of Scotland as decommissioning security
provided as part of the acquisition of gas interests from GDF SUEZ E&P UK Ltd
and $0.4 million held by the Bank of Scotland as cash security for a bank
guarantee that Ithaca UK provided to the Crown Estate when it was granted Field
Development Plan approval for the Jacky Field.


During the year ended December 31, 2010 there was a cash inflow from operating,
investing and financing activities of $165.7 million (2009 inflow of $2.9
million). The net inflow was due to: positive cash flows from operating
activities of $93.8 million; positive cash flows from financing activities of
$143.3 million, predominantly due to the Bought Deal Offering and Private
Placement that completed in the year; offset by a decrease in cashflows from
investing activities, being $63.8 million investment in fixed assets, $4.5
million realized foreign exchange loss on derivatives and movements in capex
related working capital. The fixed asset investment in the year predominantly
related to the Beatrice workovers, the appraisal well drilling on Stella, and
capital expenditure on the Athena development.


The combination of the proceeds from the Bought Deal Offering and Private
Placement, together with debt made available from the Credit Facility and a
portion of anticipated cash flows from current operations, 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 of which the largest
component relates to the Engineering (Athena and Stella projects): 




Year ended                       2011     2012     2013     2014  Subsequent
                                                                     to 2014
                                  US$      US$      US$      US$         US$
----------------------------------------------------------------------------
Office lease                      248      247      247      247         804
Exploration license fees        1,275    1,635    1,977        -           -
Engineering                    20,466        -        -        -           -
----------------------------------------------------------------------------
Total                          21,989    1,882    2,224      247         804



OUTSTANDING SHARE INFORMATION 

As at December 31, 2010, Ithaca had 255,789,464 common shares outstanding along
with 20,146,003 options to employees and directors to acquire common shares. 


The total number of options outstanding is inclusive of 10,100,000 options
granted to employees and directors through the year in accordance with the
Company's stock option plan. The options were approved by the Board of Directors
at a range of prices from C$1.54 to C$2.25 which were the closing prices on the
TSX Venture Exchange on the dates of grant. Each of the options granted may be
exercised for a period of four years from the grant date. One third of the
options will vest at the end of each of the first, second and third years from
the effective date of grant. 


In addition, Ithaca granted Gemini 2,500,000 warrants to purchase common shares
of the Corporation in 2010. These warrants were exercised after the year end on
March 3, 2011. 


As at April 21, 2011, Ithaca had 258,535,295 common shares outstanding along
with 19,798,505 options to employees and directors to acquire common shares. 


CRITICAL ACCOUNTING ESTIMATES

Ithaca's significant accounting policies are disclosed in note 2 to the December
31, 2010 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 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 cash flows, discounted using a risk-free rate, 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 ("ARO") associated with
oil and gas wells are determined using estimated costs discounted based on the
estimated life of the asset. 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 / assets
requires interpretation of complex laws and regulations. Tax filings are subject
to audit and potential reassessment after the lapse of considerable time.
Accordingly, the actual income tax liability may differ significantly from that
estimated and recorded on the financial statements.


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


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 on the balance sheet as at
December 31, 2010.


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
2010 was $0.6 million (2009 - $0.2 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 Corporation is dependent upon the production rates and oil price to fund the
current development program. In order to mitigate the Corporation's risk to
fluctuations in oil price, the Corporation has taken out a number of commodity
derivatives. As at December 31, 2010, the Corporation had one forward swap
outstanding for 80,600 bbls to hedge a proportion of December 2010 production,
priced in January 2011. In March 2011, a 'put' option to sell 804,500 bbls of
the Corporation's 2011 forecast production at $105 / bbl was entered into. In
April 2011 a further 'put' option to sell an additional 300,000 bbls of the
Corporation's forecast 2011 production at $115 / bbl was entered into. 


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 $/GBP  rate of no worse than $1.60/GBP 1.00
and allows the Corporation to benefit from spot movements down to $1.4975: GBP
1.00. A realized loss of $1.3 million has been recognized on the contract for
the year ended December 31, 2010. The contract expired on December 31, 2010. 


On July 7, 2010, in order to protect against the strengthening of the US Dollar
and secure the gross proceeds from the equity raise of $150 million the
Corporation entered into a foreign exchange forward contract to swap the
Canadian dollars and GBP proceeds of the Bought Deal Offering and the Private
Placement in exchange for US Dollars when the proceeds where estimated to be
received at contracted rates of USD$ / CAD$ and USD / GBP . During the hedged
period the US Dollar weakened hence the forex hedges prevented an exchange gain
being realized and forex losses of $3.1 million were recorded.


In 2011 in order to protect against movements in USD/GBP  exchange rates, the
Corporation holds GBP denominated cash on deposit in order to match the forecast
2011 GBP denominated expenditure.


A further risk relates to the Corporation's ability to meet the conditions
precedent for a full drawdown on the Credit Facility. Ability to drawdown the
Credit Facility is based on the Corporation meeting certain tests including
coverage ratio tests, liquidity tests and development funding tests which are
determined by a detailed economic model of the Corporation. There can be no
assurance that the Corporation will satisfy such tests in order to have access
to the full amount of the Credit Facility, however at present the Corporation
believes that there are no circumstances present that would lead to failure to
meet those tests. 


In addition, the Facility contains covenants that require the Corporation to
meet certain financial tests and that restrict, among other things, the ability
of Ithaca to incur additional debt or dispose of assets. To the extent the cash
flow from operations is not adequate to fund Ithaca's cash requirements,
external financing may be required. Lack of timely access to such additional
financing, or which may not be on favorable terms, could limit the future growth
of the business of Ithaca. To the extent that external sources of capital,
including public and private markets, become limited or unavailable, Ithaca's
ability to make the necessary capital investments to maintain or expand its
current business and to make necessary principal payments under the Credit
Facility may be impaired. At present the Corporation believes that there are no
circumstances present that would lead to failure to meet those certain financial
tests.


A failure to access adequate capital to continue its expenditure program may
require that the Corporation meet any liquidity shortfalls through the selected
divestment of its portfolio or delays to existing development programs. As is
standard to a Credit facility, the Corporation's and Ithaca UK assets have been
pledged as Credit Facility collateral and are subject to foreclosure in the
event the Corporation or Ithaca UK defaults. At present the Corporation believes
that there are no circumstances present that would lead to selected divestment,
delays to existing programs or a default relating to the Credit Facility.


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 extends unsecured credit to these parties, and therefore, the
collection of any receivables may be affected by changes in the economic
environment or other conditions. Management believes the risk is mitigated by
the financial position of the parties. 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. All gas production, acquired through the purchase of
the Anglia and Topaz fields from GDF SUEZ E&P UK Ltd, is sold through three
contracts on a monthly basis to RWE NPower PLC and Hess Energy Gas Power (UK)
Ltd. The Corporation has not experienced any material credit loss in the
collection of accounts receivable to date.


The Corporation's properties will be generally held in the form of licenses,
concessions, permits and regulatory consents ("Authorizations"). The
Corporation's activities are dependent upon the grant and maintenance of
appropriate Authorizations, which may not be granted; may be made subject to
limitations which, if not met, will result in the termination or withdrawal of
the Authorization; or may be otherwise withdrawn. Also, in the majority of its
licenses, the Corporation is often a joint interest-holder with another third
party over which it has no control. An Authorization may be revoked by the
relevant regulatory authority if the other interest-holder is no longer deemed
to be financially credible. There can be no assurance that any of the
obligations required to maintain each Authorization will be met. Although the
Corporation believes that the Authorizations will be renewed following expiry or
granted (as the case may be), there can be no assurance that such Authorizations
will be renewed or granted or as to the terms of such renewals or grants. The
termination or expiration of the Corporation's Authorizations may have a
material adverse effect on the Corporation's results of operations and business.


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


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.


CONTROL ENVIRONMENT 

As of December 31, 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 year ended December 31, 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 from GAAP to IFRS will be required for publicly accountable
enterprises, for interim and annual financial statements effective, for fiscal
years beginning on or after January 1, 2011, with corporations required to
report comparatives in accordance with IFRS for the year preceding
implementation of the change. 


IFRS adoption is currently scheduled for the Corporation's fiscal year
commencing January 1, 2011. Ithaca's financial statements up to and including
the December 31, 2010 financial statements 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.


The Corporation has completed the diagnostic assessment phase by performing
comparisons of the differences between GAAP and IFRS. The Corporation 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 and the Corporation has determined that the most significant
impact of IFRS conversion is to property, plant and equipment (PP&E).


The Corporation has completed the initial procedures required to convert its
opening balance sheet at 1 January 2010. The resulting proposed adjustments are
discussed below but are subject to final review and audit.


Although the conversion may have a significant impact on accounting for PP&E
going forward, at the opening balance sheet date, the "Deemed Cost" exemption
has been taken, with the existing cost pool being allocated across oil and gas
assets on a pro rata basis using reserve values as of that date. The assets have
subsequently been assessed for impairment at the date of transition and no
impairment adjustment is required, hence the total value of PP&E remains
unchanged.


The ARO liability at 1 January 2010 has been recalculated as required under IAS
37 and an increase in the liability of approximately $0.8m is proposed as a
result of discount rate changes. 


Contingent consideration amounts on transactions prior to 1 January 2010 are in
the process of being valued in accordance with IAS 39. On transition to IFRS,
this is likely to result in a liability of between $5m and $10m being
recognized.


Other opening balance sheet adjustments are still being finalized but are not
expected to be significant.


The Corporation is also in the process of finalizing its accounting policy
choices under IFRS.


The Corporation's transition plan remains on schedule and all changes to comply
with IFRS required from January 1, 2011 will have been 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,
commodity hedge 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 December 31, 2010. 


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 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 Cook
    & Maclure 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 hosts and associated pipelines can be negotiated
    and accessed within the expected timeframe; 
--  Field development plan approval and operational construction and
    development is obtained within expected timeframes; 
--  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 Credit Facility; 
--  Ithaca's reliance on partners and their ability to meet commitments
    under relevant agreements; and 
--  the state of the debt and equity markets in the current economic
    environment. 



The 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; 
--  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; 
--  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 including the recent
    increase in UK taxes; 
--  adverse regulatory rulings, orders and decisions; 
--  risks associated with the nature of the common shares; 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 estimates of reserves and future net revenue for individual properties may
not reflect the same confidence level as estimates of reserves and future net
revenue for all properties, due to the effects of aggregation. 


Independent Auditor's Report

To the Shareholders of Ithaca Energy Inc.

We have audited the accompanying consolidated financial statements of Ithaca
Energy Inc. which comprise the consolidated balance sheets as at December 31,
2010 and December 31, 2009 and the consolidated statements of net and
comprehensive income, shareholders' equity, and cash flows for the years then
ended, and the related notes including a summary of significant accounting
policies.


Management's responsibility for the consolidated financial statements 

Management is responsible for the preparation and fair presentation of these
consolidated financial statements in accordance with Canadian generally accepted
accounting principles, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.


Auditor's responsibility 

Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits in accordance with
Canadian generally accepted auditing standards. Those standards require that we
comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free from material misstatement. 


An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the consolidated financial statements. The procedures
selected depend on the auditor's judgment, including the assessment of the risks
of material misstatement of the consolidated financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity's preparation and fair presentation of
the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.


We believe that the audit evidence we have obtained in our audits is sufficient
and appropriate to provide a basis for our audit opinion.


Opinion 

In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its subsidiaries as
at December 31, 2010 and December 31, 2009 and the results of its operations and
their cash flows for the years then ended in accordance with Canadian generally
accepted accounting principles.


Chartered Accountants

Calgary, Alberta, Canada

April 21, 2011

"PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, an Ontario
limited liability partnership, which is a member firm of PricewaterhouseCoopers
International Limited, each member firm of which is a separate legal entity. 




Consolidated Balance Sheets                                                 
                                                  December 31, December 31, 
                                                          2010         2009 
                                                       US$'000      US$'000 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS                                                                      
Current assets                                                              
     Cash and cash equivalents                         195,581       29,886 
     Accounts receivable                                93,434       67,166 
     Restricted cash (note 3)                                -        5,224 
     Deposits, prepaid expenses and other               11,820          351 
     Foreign exchange forward contract (note 13)             -          686 
                                                 ---------------------------
                                                       300,835      103,313 
                                                                            
Restricted cash (note 3)                                 6,308          352 
Loan fees (note 5)                                         521            - 
Future Income Taxes asset (note 11)                     16,074            - 
Property, plant and equipment (note 4)                 238,113      205,475 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                       561,851      309,140 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
LIABILITIES AND SHAREHOLDERS' EQUITY                                        
Current liabilities                                                         
     Accounts payable and accrued liabilities           75,563       43,613 
     Commodity hedge (note 13)                             349          397 
                                                 ---------------------------
                                                        75,912       44,010 
                                                                            
Derivative financial instruments (note 14)               4,378            - 
Long term liability on Beatrice acquisition (note                           
 6)                                                      2,872        2,718 
Asset retirement obligations (note 7)                   20,868        7,956 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                       104,030       54,684 
                                                                            
Shareholders' equity                                                        
     Share capital (note 8)                            422,373      277,075 
     Warrants issued (note 8)                              311            - 
     Contributed surplus (note 9)                       11,531        7,812 
     Surplus / (Deficit)                                23,606      (30,431)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                       457,821      254,456 
                                                                            
                                                       561,851      309,140 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Commitments (note 12)                                                       
"Approved on behalf of the Board"                                           
                                                                            
"John Summers"                                                              
-------------------------------------------------                           
-------------------------------------------------                           
Director                                                                    
                                                                            
"Jay Zammit"                                                                
-------------------------------------------------                           
-------------------------------------------------                           
Director                                                                    
                                                                            
                                                                            
Consolidated Statements of Net and Comprehensive Income                     
                                                          2010         2009 
                                                                        (i) 
                                                       US$'000      US$'000 
------------------------------------------------- ------------- ------------
------------------------------------------------- ------------- ------------
REVENUES                                                                    
  Oil & Gas sales                                      132,350      101,282 
  Other income                                           2,771        9,179 
  Interest income                                          112          351 
                                                  ------------- ------------
                                                  ------------- ------------
                                                       135,233      110,812 
                                                  ------------- ------------
                                                  ------------- ------------
COSTS AND EXPENSES                                                          
  General and administrative                             3,372        6,616 
  Operating                                             37,850       46,312 
  Depletion, depreciation and accretion (note 4                             
   and note 7)                                          49,989       53,326 
  (Gain) / loss on foreign exchange                       (818)       3,253 
  Revaluation of long term liability (note 6)              154          117 
  (Gain) / loss on derivatives (note 13)                 5,114       (8,080)
  Stock based compensation (note 8(c))                   1,248          638 
  Financing, interest and bank charges                     281          692 
                                                  ------------- ------------
                                                  ------------- ------------
                                                        97,190      102,874 
                                                  ------------- ------------
                                                  ------------- ------------
                                                                            
Net and comprehensive income before tax                 38,043        7,938 
Income taxes - current                                     (80)         (81)
Income taxes - future                                   16,074            - 
                                                  ------------- ------------
                                                  ------------- ------------
Net and comprehensive income                            54,037        7,857 
                                                  ------------- ------------
                                                  ------------- ------------
Net and comprehensive income per share (basic)                              
 (note 10)                                                0.27         0.05 
                                                                            
Net and comprehensive income per share (diluted)                            
 (note 10)                                                0.26         0.05 
(i) Reclassified, see note 19                                               
                                                                            
                                                                            
Consolidated Statements of Shareholders' Equity                             
(all amounts are                                                            
 US$'000)                                                                   
                                Contributed   Warrants  Surplus /           
                 Share Capital      Surplus     Issued  (Deficit)     Total 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, Jan 1                                                              
 2009                  277,030        5,126          -    (38,287)  243,869 
Stock based                                                                 
 compensation                -        2,707          -          -     2,707 
Options                                                                     
 exercised                  45          (21)         -          -        24 
Net income for                                                              
 the year                    -            -          -      7,856     7,856 
----------------------------------------------------------------------------
                                                                            
Balance, Dec 31                                                             
 2009                  277,075        7,812          -    (30,431)  254,456 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Balance, Jan 1                                                              
 2010                  277,075        7,812          -    (30,431)  254,456 
Stock based                                                                 
 compensation                -        3,992          -          -     3,992 
Options                                                                     
 exercised                 578         (273)         -          -       305 
Issued for cash        153,248            -          -          -   153,248 
Share issue                                                                 
 costs                  (8,528)           -          -          -    (8,528)
Warrants issued              -            -        311          -       311 
Net income for                                                              
 the period                  -            -          -     54,037    54,037 
----------------------------------------------------------------------------
                                                                            
Balance, Dec 31                                                             
 2010                  422,373       11,531        311     23,606   457,821 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
Consolidated Statements of Cash Flows                                       
                                                                            
                                                                            
                                                          2010         2009 
                                                                        (i) 
                                                       US$'000      US$'000 
------------------------------------------------- ------------- ------------
------------------------------------------------- ------------- ------------
CASH PROVIDED BY (USED IN):                                                 
OPERATING ACTIVITIES:                                                       
 Net profit / (loss)                                    54,037        7,856 
 Items not affecting cash                                                   
  Depletion, depreciation and accretion                 49,989       53,326 
  Unrealized loss / (gain) on derivatives                  638         (289)
  Revaluation of long term liability                       154          117 
  Stock based compensation                               1,248          638 
  Amortization of loan fees                                155            - 
  Future income taxes (recovered)                      (16,074)           - 
  Realized loss / (gain) on derivatives                  4,476       (7,791)
------------------------------------------------- ------------- ------------
------------------------------------------------- ------------- ------------
 Cashflow from operations                               94,623       53,858 
Changes in non-cash working capital relating to                             
 operating activities                                     (836)     (33,299)
------------------------------------------------- ------------- ------------
------------------------------------------------- ------------- ------------
                                                        93,787       20,559 
                                                                            
FINANCING ACTIVITIES:                                                       
 Proceeds from issuance of shares                      153,553           22 
 Share Issue Costs                                      (8,528)           - 
 (Increase) / Decrease in Restricted Cash                 (732)       6,729 
 Loan issue costs                                         (962)           - 
 Loan proceeds / (repayment)                                 -      (61,200)
------------------------------------------------- ------------- ------------
------------------------------------------------- ------------- ------------
                                                       143,331      (54,449)
                                                                            
INVESTING ACTIVITIES:                                                       
 Proceeds on disposal                                        -      101,649 
 Oil and natural gas properties                        (63,516)     (63,578)
 Other non-current assets                                 (313)        (103)
 Realized loss / (gain) on derivatives                  (4,476)       7,791 
------------------------------------------------- ------------- ------------
------------------------------------------------- ------------- ------------
                                                       (68,305)      45,759 
Changes in non-cash working capital relating to                             
 investing activities                                   (2,765)      (9,440)
------------------------------------------------- ------------- ------------
------------------------------------------------- ------------- ------------
                                                                            
                                                       (71,070)      36,319 
                                                                            
Gain / (loss) on foreign exchange                         (353)         513 
------------------------------------------------- ------------- ------------
------------------------------------------------- ------------- ------------
                                                                            
INCREASE IN CASH AND CASH EQUIVALENTS                  165,695        2,942 
                                                                            
Cash and cash equivalents, beginning of year            29,886       26,944 
------------------------------------------------- ------------- ------------
------------------------------------------------- ------------- ------------
Cash and cash equivalents, end of year                 195,581       29,886 
------------------------------------------------- ------------- ------------
(i) Reclassified, see note 19                                               



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 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 consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles. 


Principles of consolidation 

The consolidated financial statements of the Corporation include the accounts of
Ithaca and its wholly-owned subsidiary Ithaca UK. All inter-company transactions
and balances have been eliminated.


Revenue Recognition

Oil, gas and condensate revenues associated with the sale of the Corporation's
crude oil and natural gas are recognised when title passes to the customer and
collectability is reasonably assured. Revenues from the production of oil and
natural gas properties in which the Corporation has an interest with joint
venture partners are recognized on the basis of the Corporation's working
interest in those properties (the entitlement method). Differences between the
production sold and the Corporation's share of production are recognized within
cost of sales at market value. The costs associated with the delivery, including
operating and maintenance costs and transportation expenses are recognised in
the same period in which the related revenue is earned and recorded. 


Use of Estimates

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions regarding certain assets,
liabilities, revenues and expenses. Such estimates must often be made based on
unsettled transactions and other events and a precise determination of many
assets and liabilities is dependent upon future events. Actual results may
differ from estimated amounts. 


The amounts recorded for depletion, depreciation of property and equipment,
long-term liability, stock-based compensation, derivatives, warrants, and future
income taxes are based on estimates. The ceiling test and depletion charges are
based on estimates of proved reserves, production rates, prices, future costs
and other relevant assumptions. By their nature, these estimates are subject to
measurement uncertainty and the effect on the financial statements of changes in
such estimates in future periods could be material. 


Cash and Cash Equivalents

For the purpose of cash flow statements, cash and cash equivalents include
investments with an original maturity of three months or less.


Restricted Cash

Cash that is held for security for bank guarantees is reported in the balance
sheet and cash flow statements separately. If the expected duration of the
restriction is less than twelve months then it is shown in current assets.


Financial Instruments

All financial instruments are initially recognized at fair value on the balance
sheet. The Corporation's financial instruments consist of cash, restricted cash,
accounts receivable, deposits, derivatives, loan fees, accounts payable, accrued
liabilities and the long term liability on the Beatrice acquisition. The Company
classifies its financial instruments into one of the following categories:
held-for-trading financial assets and financial liabilities; held-to-maturity
investments; loans and receivables; available-for-sale financial assets; and
other financial liabilities. All financial instruments are required to be
measured at fair value on initial recognition. Measurement in subsequent periods
is dependent on the classification of the respective financial instrument.


Held-for-trading financial instruments are subsequently measured at fair value
with changes in fair value recognized in net earnings. Available-for-sale
financial assets are subsequently measured at fair value with changes in fair
value recognized in other comprehensive income, net of tax. All other categories
of financial instruments are measured at amortized cost using the effective
interest method. Cash and cash equivalents are classified as held-for-trading
and are measured at fair value. Accounts receivable are classified as loans and
receivables. Accounts payable, accrued liabilities, certain other long-term
liabilities, and long-term debt are classified as other financial liabilities.
Although the Company does not intend to trade its derivative financial
instruments, risk management assets and liabilities are classified as
held-for-trading for accounting purposes. 


Financial assets and liabilities are categorized using a three-level hierarchy
that reflects the significance of the inputs used in making fair value
measurements for these assets and liabilities. The fair values of financial
assets and liabilities included in Level 1 are determined by reference to quoted
prices in active markets for identical assets and liabilities. Fair values of
financial assets and liabilities in Level 2 are based on inputs other than Level
1 quoted prices that are observable for the asset or liability either directly
(as prices) or indirectly (derived from prices). The fair values of Level 3
financial assets and liabilities are not based on observable market data. The
disclosure of the fair value hierarchy excludes financial assets and liabilities
where book value approximates fair value due to the liquid nature of the asset
or liability. 


Transaction costs that are directly attributable to the acquisition or issue of
a financial asset or liability and original issue discounts on long-term debt
have been included in the carrying value of the related financial asset or
liability and are amortized to consolidated net earnings over the life of the
financial instrument using the effective interest method.


Analysis of the fair values of financial instruments and further details as to
how they are measured are provided in notes 13 to 15.


Foreign Currency Translation

Items included in the financial statements are measured using the currency of
the primary economic environment in which the Corporation operates (the
'functional currency'). The consolidated financial statements are presented in
United States Dollars, which is the Corporation's and Ithaca UK's functional and
presentation currency. Foreign currency transactions are translated into the
functional currency under the temporal method using the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the translation at
year end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognized in the income statement.


Property, Plant and Equipment

(a) Oil and Natural Gas Operations

The Corporation follows the full cost method of accounting for exploration and
development expenditures whereby all costs relating to the acquisition,
exploration and development of oil and natural gas reserves are capitalized.
Such costs include lease acquisitions, geological and geophysical data, lease
rentals on undeveloped properties, drilling both productive and non-productive
wells, production equipment, and overhead charges directly related to
acquisition, exploration and development activities. Proceeds received from
disposals of properties and equipment are credited against capitalized costs
unless the disposal would alter the rate of depletion and depreciation by more
than 20 percent, in which case a gain or loss on disposal is recorded. 


All costs of acquisition, exploration and development of oil and natural gas
reserves, associated tangible plant and equipment costs, and estimated costs of
future development of proved developed reserves are depleted and depreciated by
the unit of production method based on estimated gross proved reserves before
royalties as determined by independent evaluators. Natural gas reserves are
converted to equivalent units using their relative energy content of six
thousand cubic feet of natural gas to one barrel of oil. The costs of acquiring
and evaluating unproved properties are excluded from costs subject to depletion.
These properties are assessed periodically to ascertain whether impairment has
occurred. When proved reserves are assigned or the property is considered to be
impaired, the cost of the property or the amount of the impairment is added to
the costs subject to depletion.


Petroleum and natural gas assets are evaluated annually to determine whether the
costs are recoverable. The costs are assessed to be recoverable if the sum of
the undiscounted cash flows expected from the production of proved reserves
exceed the carrying value of the petroleum and natural gas assets. If the
carrying value of the petroleum and natural gas assets 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 cash flows are estimated using future
product prices and costs and are discounted using the risk-free interest rate.


(b) Non Oil and Natural Gas Operations

Computer and office equipment is recorded at cost and depreciated over its
estimated useful life on a straight-line basis over three years. Furniture and
fixtures are recorded at cost and depreciated over their estimated useful lives
on a straight-line basis over five years. 


Capitalized Interest

Interest costs associated with major development projects are capitalized until
the project is substantially completed. These costs are subsequently depleted
together with the related assets.


Joint Interest Operations

Substantially all of the Corporation's oil and natural gas activities are
carried out jointly with others. These consolidated financial statements reflect
only the Corporation's proportionate interest in such activities.


Asset Retirement Obligation

The Corporation records the present value of legal obligations associated with
the retirement of long-lived tangible assets, such as producing well sites and
processing plants, in the period in which they are incurred with a corresponding
increase in the carrying amount of the related long-lived asset. In subsequent
periods, the asset estimate obligation is adjusted for the passage of time and
any changes in the estimated amount or timing of the settlement of the
obligations. The carrying amounts of the long-lived assets are depleted using
the unit of production method. Actual costs to retire tangible assets are
deducted from the liability as incurred.


Stock based Compensation

The Corporation has a stock based compensation plan as described in note 9 (b).
The Corporation's proportionate share of stock based compensation expense is
recorded in the statement of net and comprehensive income or capitalized for all
options granted in the year, with the gross increase recorded as contributed
surplus. Compensation costs are based on the estimated fair values at the time
of the grant and the expense or capitalized amount is recognized over the
vesting period of the options. Upon the exercise of the stock options,
consideration paid together with the amount previously recognized in contributed
surplus is recorded as an increase in share capital. In the event that vested
options expire unexercised, previously recognized compensation expense
associated with such stock options is not reversed. In the event that unvested
options are forfeited or expired, previously recognized compensation expense
associated with the unvested portion of such stock options is reversed.


Earnings per Share

Basic earnings per common share are calculated on the net earnings using the
weighted average number of shares outstanding during the fiscal period. Diluted
earnings per share information is calculated using the treasury stock method
which assumes that proceeds obtained upon exercise of options and warrants would
be used to purchase common shares at the average market price for the period. No
adjustment to diluted earnings per share is made if the result of this
calculation is anti-dilutive.


Income Taxes

Income taxes are accounted for using the liability method of tax allocation.
Future income taxes are recognized for the future income tax consequences
attributable to differences between the carrying values of assets and
liabilities and their respective income tax bases. Future income tax assets and
liabilities are measured using enacted or substantively enacted income tax rates
expected to apply to taxable income in the years in which temporary differences
are expected to be recovered or settled. The effect on future income tax assets
and liabilities of a change in rates is included in earnings in the period of
the enactment date. Future income tax assets are recorded in the consolidated
financial statements if realization is considered more likely than not.


Recent Accounting Pronouncements

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.


3. RESTRICTED CASH

Restricted cash of $5.9 million is held by the Bank of Scotland as
decommissioning security provided as part of the acquisition of gas interests
from GDF SUEZ E&P UK.


Further restricted cash of $0.4 million 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.


$5.2 million of restricted cash held by the Bank of Scotland in 2009 as cash
security for the 2010 foreign exchange forward contract was released in January
2010.


4. PROPERTY, PLANT AND EQUIPMENT



                                                  December 31, December 31, 
                                                          2010         2009 
                                                       US$'000      US$'000 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Oil and natural gas properties                         341,067      259,285 
Less accumulated depletion                            (103,437)     (54,327)
                                                 ---------------------------
                                                 ---------------------------
                                                       237,630      204,958 
                                                 ---------------------------
                                                 ---------------------------
                                                                            
Other non-current assets                                 1,587        1,274 
Less accumulated depreciation and amortization          (1,104)        (757)
                                                 ---------------------------
                                                 ---------------------------
                                                           483          517 
                                                 ---------------------------
                                                 ---------------------------
                                                                            
Total property, plant and equipment                    238,113      205,475 
                                                 ---------------------------
                                                 ---------------------------



The depletion charge in the year ended December 31, 2010 was $49.1 million
(2009: $52.1 million). As at December 31, 2010, oil and natural gas properties
included $221.2 million (Dec 31, 2009: $189.5 million) relating to proved
properties and $16.4 million (Dec 31, 2009: $15.5 million) relating to unproved
properties. During the year ended December 31, 2010, the Corporation capitalized
$4.9 million (2009: $8.4 million) of overhead directly related to exploration,
appraisal and development activities. The Corporation did not capitalize any
interest (2009: $2 million) in the year ended December 31, 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 GBP 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.


Acquisitions 

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 August 1, 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 GBP 2 million ($3.2
million) or 9%, whichever is lower. On September 23, 2010, the Corporation
completed the farm out agreement. The revised interests in the Stella and
Harrier discoveries are 50.33% (interest in Hurricane remains at 100%).


On August 4, 2010, 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
GBP 11.25 million (approx $16.9 million). The effective date of the acquisition
was January 1, 2010. On December 17, 2010 the Corporation completed the
transaction for an adjusted cash consideration of GBP 6.7 million (approx $10.5
million). The adjustment results from free cash flow generated by strong
production throughout 2010 since the effective date.


A ceiling test was performed for 2010 and 2009 and there was no impairment of
proved oil and gas properties. There was no impairment (2009: nil) relating to
unproved oil and gas properties in 2010. 


The forecasted future prices used in the ceiling test were as follows:



                                Oil reference price      Gas reference price
                                          ($ / Bbl)           (GBP  / MMBtu)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2011                                          87.15                     5.54
2012                                          87.87                     5.84
2013                                          87.48                     6.01
2014                                          87.58                     5.16
2015                                          88.89                     5.24



5. LOAN FACILITY

On July 12, 2010, the Corporation signed and completed a Senior Secured
Borrowing Base Facility agreement (the "Facility") for up to US$140 million with
the Bank of Scotland Plc. The loan term is up to five years and will attract
interest at LIBOR plus 3-4.5%. Loan issue costs of $0.9 million have been
incurred in the year ended December 31, 2010 and are being amortized over the
period of the loan (approx $0.2 million amortized in the year ended December 31,
2010). 


The Corporation is subject to financial and operating covenants related to the
Facility. Failure to meet the terms of one or more of these covenants may
constitute an event of default as defined in the Facility agreement, potentially
resulting in accelerated repayment of the debt obligations. 


The Corporation is in compliance with its financial and operating covenants. 

No funds are currently drawn down under the Facility.

6. LONG TERM LIABILITY ON BEATRICE ACQUISITION



                                                December 31,   December 31, 
                                                        2010           2009 
                                                     US$'000        US$'000 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, beginning of the period                       2,718          4,137 
Disposal                                                   -         (1,536)
Revaluation in the period                                154            117 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, end of the period                             2,872          2,718 



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 5. 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 in the future.


7. ASSET RETIREMENT OBLIGATIONS



                                       December 31, 2010  December 31, 2009 
                                                 US$'000            US$'000 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
Balance, beginning of period                       7,956              7,407 
Additions                                         11,858              5,530 
Accretion                                            533                808 
Revision to estimates                                521               (362)
Liabilities disposed of                                -             (5,427)
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
Balance, end of period                            20,868              7,956 



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 $25.2 million as at December 31,
2010 (2009 $10.8 million). The Corporation uses a credit adjusted risk free
rates between 6 - 8 percent and an inflation rate of 2.5 percent over the
varying lives of the assets to calculate the present value of the asset
retirement obligation. These costs are expected to be incurred at various
intervals over the next 8 years. 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 addition to the obligation in 2010 was due to the liabilities assumed as
part of the GDF acquisition above. The liabilities disposed of in 2009 relate to
the Dyas transaction.


8. SHARE CAPITAL

(a) Issued 

The issued share capital is as follows:



Issued                                                   Number of   Amount 
                                                     common shares  US$'000 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance December 31, 2008                              162,261,975  277,030 
Issued for cash - options exercised                        100,000       23 
Transfer from Contributed Surplus on options                                
 exercised                                                               22 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance December 31, 2009                              162,361,975  277,075 
Issued for cash - options exercised                        765,205      305 
Transfer from Contributed Surplus on options                                
 exercised                                                              273 
Issued for cash - prospectus                            92,662,284  153,248 
Share issue costs                                                    (8,528)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance December 31, 2010                              255,789,464  422,373 



On July 28 2010, the Corporation successfully closed a Canadian bought deal and
UK private placement. Gross proceeds were $78.3 million (C$80.9 million) through
the issue of 47.6 million shares at a price of C$1.70 per share and $74.9
million (GBP 48.2 million) through the issue of 45.1 million shares at GBP 1.07
per common share.


(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 $1.50
(C$1.55). In the quarter ended September 30, 2010 360,000 options were granted
at an exercise price of $1.76 (C$1.85) to employees and directors pursuant to
the terms of the Corporation's stock-based compensation plan. In the quarter
ended December 31, 2010, the Corporation granted 5,190,000 options at an
exercise price of $2.22 (C$2.25). 


On September 29, 2010, 310,000 options were reserved for issue for future
employees. As at December 31, 2010, 210,000 of these options have not yet been
granted, therefore they have not been included in the table below and no expense
has been incurred in relation to the options. 


The Corporation's stock options and exercise prices are denominated in Canadian
Dollars when granted. As at December 31, 2010, 20,146,003 stock options to
purchase common shares were outstanding, having an exercise price range of $0.20
to $3.43 (C$0.25 to C$3.65) per share and a vesting period of up to 3 years in
the future.




Changes to the Corporation's stock options are summarized as follows:       
                                                                            
                                December 31, 2010       December 31, 2009   
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                               Number of    Wt. Avg.   Number of    Wt. Avg.
                                 Options    Exercise     Options    Exercise
                                           Price (i)               Price (i)
                                                 US$                     US$
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, beginning of period  11,042,875      $ 1.48  10,694,500      $ 1.92
Granted                       10,100,000      $ 1.88   3,876,875      $ 0.83
Forfeited / expired             (231,667)     $ 1.28  (3,428,500)     $ 2.18
Exercised                       (765,205)     $ 0.33    (100,000)     $ 0.24
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Options outstanding, end of                                                 
 period                       20,146,003      $ 1.61  11,042,875      $ 1.48
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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 as at December 31, 2010         
                                                                            
                  Options Outstanding                   
------------------------------------------------------- 
------------------------------------------------------- 
Range of              Number of    Wt. Avg.    Wt. Avg. 
Exercise                Options        Life    Exercise 
Price                               (Years)   Price (i) 
                                                    US$ 
------------------------------------------------------- 
------------------------------------------------------- 
$3.65 (C$3.65)        2,435,000        1.14       $3.65 
                                                        
$2.22-$2.86                                             
(C$2.25-C$3.00)       6,375,000        2.40       $2.25 
                                                        
$1.49-$1.76                                             
(C$1.54-C$1.85)       5,345,000        3.01       $1.54 
                                                        
$0.20-$0.80                                             
(C$0.25-C$0.87)       5,991,003        2.77       $0.55 
------------------------------------------------------- 
------------------------------------------------------- 
                     20,146,003        2.50       $1.61 
------------------------------------------------------- 
------------------------------------------------------- 

                  Options Exercisable                  
-------------------------------------------------------
-------------------------------------------------------
Range of              Number of    Wt. Avg.    Wt. Avg.
Exercise                Options        Life    Exercise
Price                               (Years)   Price (i)
                                                    US$
-------------------------------------------------------
-------------------------------------------------------
$3.65 (C$3.65)        1,623,334         1.1       $3.65
                                                       
$2.29-$2.86                                            
(C$2.51-C$3.00)       1,285,000         0.3       $2.38
                                                       
$1.49-$1.68                                            
(C$1.54-C$1.80)         300,000         1.7       $1.68
                                                       
$0.20-$0.81                                            
(C$0.25-C$0.87)       2,591,084         2.8       $0.45
-------------------------------------------------------
-------------------------------------------------------
                      5,799,418         1.3       $1.44
-------------------------------------------------------
-------------------------------------------------------
                                                                            
The following is a summary of stock options as at December 31, 2009         
                                                                            
                  Options Outstanding                   
------------------------------------------------------- 
------------------------------------------------------- 
Range of              Number of    Wt. Avg.    Wt. Avg. 
Exercise                Options        Life    Exercise 
Price                               (Years)   Price (i) 
                                                    US$ 
------------------------------------------------------- 
------------------------------------------------------- 
$3.36 (C$3.65)        2,435,000        2.21       $3.36 
                                                        
$2.14-$2.84                                             
(C$2.32-C$3.00)       1,385,000        1.32       $2.35 
                                                        
$1.66 (C$1.80)          450,000        2.67       $1.42 
                                                        
$0.23 - $0.80                                           
(C$0.25-C$0.87)       6,772,875        3.78       $0.52 
------------------------------------------------------- 
------------------------------------------------------- 
                     11,042,875        3.06       $1.48 
------------------------------------------------------- 
------------------------------------------------------- 

                  Options Exercisable                  
-------------------------------------------------------
-------------------------------------------------------
Range of              Number of    Wt. Avg.    Wt. Avg.
Exercise                Options        Life    Exercise
Price                               (Years)   Price (i)
                                                    US$
-------------------------------------------------------
-------------------------------------------------------
$3.36 (C$3.65)          811,666        2.21       $3.36
                                                       
$2.14-$2.84                                            
(C$2.32-C$3.00)         956,668        1.24       $2.34
                                                       
$1.66 (C$1.80)          149,999        2.67       $1.42
                                                       
                                                       
$0.23 (C$0.25)        1,032,001        3.94       $0.20
-------------------------------------------------------
-------------------------------------------------------
                      2,950,334        2.52       $1.91
-------------------------------------------------------
-------------------------------------------------------
(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 during the year ended December 31, 2010 for total stock options granted was
$4.0 million (2009: $2.7 million). The income statement for the year ended
December 31, 2010 shows a charge of $1.2 million for stock based compensation,
being the Corporation's share of stock based compensation chargeable through the
income statement. The remainder of the Corporation's share of stock based
compensation has been capitalized. 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 year   For the year 
                                                       ended          ended 
                                                December 31,   December 31, 
                                                        2010           2009 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Risk free interest rate                                  1.2%          2.13%
Expected stock volatility                                104%            94%
Expected life of options                             3 years        4 years 
Weighted Average Fair Value                            $1.14          $0.83 



(d) Gemini Agreement

In 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
retained 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 and to receive payments connected to asset sales of interests in Athena.
On September 20, 2010, a further agreement was entered into with Gemini whereby
in exchange for and in consideration of Gemini's waiver of any right to proceeds
from the disposal of equity interest in the Athena discovery and in substitution
for any previously awarded or agreed warrants, Ithaca Energy Inc. granted Gemini
warrants to acquire up to 2,500,000 common shares in Ithaca Energy Inc. The
warrants were exercised at C$2.25 per share on March 3, 2011. The agreement
terminates all rights that Gemini has in respect of the Corporation's interests.
The total fair value attributed to warrants issued in the year was $0.3 million.
The fair value of each warrant granted was estimated at the date of grant, using
the Black-Scholes option pricing model with the following assumptions:




                                       For the year ended December 31, 2010 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Risk free interest rate                                                0.26%
Expected stock volatility                                             58.39%
Expected life of options                                         0.50 years 
Weighted Average Fair Value                                           $0.12 
                                                                            
                                                                            
9. CONTRIBUTED SURPLUS                                                      
                                                                            
                                                December 31,   December 31, 
                                                        2010           2009 
                                                     US$'000        US$'000 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, beginning of period                           7,812          5,127 
Stock based compensation cost                          3,992          2,707 
Transfer to share capital on exercise of                                    
 options                                                (273)           (22)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, end of period                                11,531          7,812 



10. PER SHARE AMOUNTS

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




                                                         2010           2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average number of common shares                                    
 (basic)                                          202,695,321    162,270,468
Weighted average number of common shares                                    
 (diluted)                                        206,372,751    162,377,456



11. INCOME TAXES

The provision for income taxes reflects an effective tax rate which differs from
the amount computed by applying the combined statutory Canadian Federal and
Provincial tax rates to earnings before taxes. The reasons for these differences
are as follows: 




                                                        2010           2009 
                                                     US$'000        US$'000 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net Income / (Loss) before taxes                      38,043          7,937 
Enacted tax rate                                          28%            29%
Computed income taxes at the enacted rate             10,652          2,302 
Expenses not deductable for tax purposes              (5,488)        (3,022)
Difference in foreign tax rates                        8,607            (99)
Change in tax rates                                     (231)            80 
Change in tax rates on opening temporary                   -            611 
Change in valuation allowance                        (13,664)         1,088 
Share issue costs                                          -           (862)
Adjustment in respect of previous period               1,495            (17)
Recognition of future tax asset                      (16,074)             - 
Other                                                 (1,291)             - 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total                                                (15,994)            81 
                                                                            
At December 31, 2010, the Corporation had estimated future tax assets as    
follows:                                                                    
                                                                            
                                                        2010           2009 
                                                     US$'000        US$'000 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Future Tax Assets                                                           
 Non-capital losses                                 (114,245)       122,956 
 Share issue costs                                    (2,394)         1,473 
 Foreign exchange                                     (1,345)             - 
 Fixed assets                                         93,933        (95,524)
 General Provision                                    (2,175)         4,107 
 Valuation Allowance                                  10,152        (33,012)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
 Total                                               (16,074)             - 



There is no expiry date on the Corporation's Canadian and United Kingdom
non-capital losses carried forward.


12. COMMITMENTS

As at December 31, 2010, the Corporation had the following financial commitments:



Year ended                       2011     2012     2013     2014  Subsequent
                                                                     to 2014
                              US$'000  US$'000  US$'000  US$'000     US$'000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Office lease                      248      247      247      247         804
Exploration license fees        1,275    1,635    1,977        -           -
Engineering                    20,466        -        -        -           -
                            ------------------------------------------------
                            ------------------------------------------------
Total                          21,989    1,882    2,224      247         804



13. 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 December 31, 2010:




                                 Level 1  Level 2  Level 3  Total Fair Value
                                 US$'000  US$'000  US$'000           US$'000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Commodity hedge                        -      349        -               349
Long term liability on Beatrice                                             
 acquisition                           -        -    2,872             2,872
Derivative financial instrument             4,378                      4,378
----------------------------------------------------------------------------
----------------------------------------------------------------------------



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




                                                    Year ended Dec 31,      
                                                        2010           2009 
                                                     US$'000        US$'000 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Unrealized (loss) / gain on foreign exchange                                
 forward contracts                                      (686)           686 
Realized (loss) / gain on foreign exchange                                  
 forward contracts                                    (1,319)         7,763 
Realized (loss) on foreign exchange forward                                 
 contracts (equity raise)                             (3,095)             - 
Unrealized gain / (loss) on commodity hedges              48           (397)
Realized (loss) / gain on commodity hedges               (62)            27 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total (loss) / gain on derivatives                    (5,114)         8,080 



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. The Corporation is also exposed to natural gas
price movements on uncontracted gas sales. Natural gas prices, in addition to
the worldwide factors noted above, can also be influenced by 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. 


In Q4 2009 the Corporation entered into a forward swap for 51,000 barrels per
month over November, December, January and February 2010 production fixing the
price at $77/barrel. In Q4 2010, the Corporation entered into another forward
swap for 108,668 and 80,600 barrels per month over December and January
respectively to hedge a proportion of November and December production. The
combination of these forward swaps resulted in a realized loss of $62k and an
unrealized gain of $48k in the year ended December 31, 2010. If the oil price
had been lower by $1 per barrel in 2010 then the profit for the year to December
31, 2010 would have been lower by $1.4 million ($0.3 million loss mitigated due
to the contracts noted above).


ii) Interest Risk 

Calculation of interest payments for the Senior Secured Borrowing Base Facility
agreement with the Bank of Scotland that was signed on July 12, 2010
incorporates LIBOR. The Corporation will therefore 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. No funds are
currently drawn down under the facility.


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 July 7, 2010, in order to protect against the strengthening of the US Dollar
and secure the net proceeds from the equity raise of $150 million the
Corporation entered into a foreign exchange forward contract to swap the
Canadian Dollars and Pounds Sterling proceeds of the Canadian bought deal and UK
Private placement in exchange for US Dollars when the proceeds were estimated to
be received at contracted rates of $1.00 / C$1.0489 and $1.00 / GBP 0.6592.
During the period the US Dollar weakened with the result that the forex
instruments prevented an exchange gain being realized. Forex losses of $3.1
million were recorded which offset the natural gain reflected in equity.


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 ("GBP "), was able to lock in a
rate of no worse than USD1.40/GBP 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/GBP 1.00 (the "Trigger
rate"). Any strengthening of the USD/GBP  rate beyond the Trigger rate during
any of the periods or "windows" between the transaction dates led to a rate of
USD1.40/GBP 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 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 $48 million) at a US$/GBP  rate of no
worse than USD1.60/1.0 and a Trigger rate of USD1.4975/GBP 1.00. A realized loss
of $1.3 million has been recognized on the contract for the year ended December
31, 2010. This contract expired in December 2010, and the resulting unwinding of
unrealized gains and losses on the contracts resulted in an unrealized loss of
$0.7 million for the year ended December 31, 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.
All gas production, acquired through the purchase of the Anglia and Topaz fields
from GDF SUEZ E&P UK Ltd, is sold through three contracts on a monthly basis to
RWE NPower PLC and Hess Energy Gas Power (UK) Ltd.


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 December 31, 2010 over 99% of accounts receivables
are current, being defined as less than 90 days. The Corporation has no
allowance for doubtful accounts as at December 31, 2010 (December 31, 2009 $0.4
million).


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
December 31, 2010, the Corporation has no exposure, due to the unrealized loss
position (December 31, 2009: $0.7 million).


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 December 31, 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$'000        US$'000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts payable and accrued liabilities               75,563              -
Commodity hedge                                           349              -
Long term liability                                         -          3,522
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total                                                  75,912          3,522



14. DERIVATIVE FINANCIAL INSTRUMENTS



                                                 December 31,   December 31,
                                                         2010           2009
                                                      US$'000        US$'000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Embedded Derivative                                     4,378              -



The Corporation has acquired an embedded derivative within an Anglia gas sales
contract. This is recognized at its fair value in the financial statements at
the year end. Fair value represents the difference between the contract price
and the year end market price for the contracted volumes.


15. 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 December 31, 2010,
the classification of financial instruments and the carrying amounts reported on
the balance sheet and their estimated fair values are as follows:




                                      December 31, 2010   December 31, 2009 
                                           US$'000             US$'000      
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Classification                       Carrying            Carrying           
                                       Amount Fair Value   Amount Fair Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash equivalents (Held for                                         
 trading)                             195,581    195,581   29,886     29,886
Restricted cash                         6,308      6,308    5,576      5,576
Foreign exchange forward contract                                           
 (Held for trading)                         -          -      685        685
Accounts receivable - current (Loans                                        
 and Receivables)                      93,434     93,434   67,166     67,166
Deposits                                  248        248      346        346
Loan fees - current                       286        286        -          -
Loan fees - non-current                   521        521        -          -
                                                                            
Commodity hedge (Held for trading)        349        349      397        397
Derivative financial instrument         4,378      4,378        -          -
Long Term Liability                     2,872      2,872    2,718      2,718
Accounts payable (Other financial                                           
 liabilities)                          74,576     74,576   43,613     43,613



16. SUPPLEMENTAL INFORMATION



                                                         2010           2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                      US$'000        US$'000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest paid during the period                             8          3,076
Income taxes paid during the period                       103              -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total                                                     111          3,076



17. 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, warrants issued, retained earnings or deficit and other comprehensive
income.




                                                 December 31,  December 31, 
                                                         2010          2009 
                                                      US$'000       US$'000 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Share capital                                         422,373       277,075 
Contributed surplus                                    11,531         7,812 
Warrants issued                                           311             - 
Retained earnings                                      23,606       (30,431)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shareholders' equity                                  457,821       254,456 
                                                                            
Working capital                                       224,923        59,303 
----------------------------------------------------------------------------



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. 




                                                 December 31,   December 31,
                                                         2010           2009
                                                      US$'000        US$'000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Debt                                                        -              -
Equity                                                457,821        254,456
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Debt as a % of Equity                                     N/A            N/A



On July 12, 2010, the Corporation signed and completed a Senior Secured
Borrowing Base Facility agreement (the "Facility") for up to US$140 million with
the Bank of Scotland Plc. The loan term is up to five years. The Corporation is
subject to financial and operating covenants related to the Facility. Failure to
meet the terms of one or more of these covenants may constitute an event of
default as defined in the Facility agreement, potentially resulting in
accelerated repayment of the debt obligations. The company is in compliance with
its financial and operating covenants. No funds are currently drawn down under
the Facility.


On July 28, 2010, the Corporation completed an equity raise 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 C$1.70 per common share and
45.1 million common shares at a price of GBP 1.07 (approx C$1.70) per common
share (the "Private Placement"). 


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.


18. 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 year ended December 31, 2010 was $0.6 million (December 31, 2009 - $0.2
million). The balance outstanding at December 31, 2010 was $Nil (December 31,
2009 - $Nil). These amounts have been recorded at the exchange amount.


19. COMPARATIVE FIGURES 

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


20. SUBSEQUENT EVENTS

In March 2011 Gemini exercised all warrants granted to acquire 2,500,000 common
shares of the Company at C$2.25 per share.


In March 2011, a 'put' option to sell 804,500 bbls of the Corporation's 2011
forecast production at $105 / bbl was entered into. In April 2011 a further
'put' option to sell an additional 300,000 bbls of the Corporation's forecast
2011 production at $115 / bbl was entered into.


In April 2011 the Corporation entered into an agreement to acquire a 28.46%
non-operated interest in the Cook oil field and a 7.41% non-operated interest in
the Maclure oil field from Hess Limited ("Hess") for a consideration of $74.5
million and the transfer from Ithaca to Hess of a 10% interest in each of
exploration Blocks 42/25b, 43/16a and 43/21c in the Southern North Sea (the
"Cook & Maclure Acquisition"). The acquisition of Maclure is subject to
pre-emption within 30 days of notification to other parties in the Maclure
field. The transaction is expected to complete in Q3 2011 with an effective date
of January 1, 2011.


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