oilvoice magazine | july 2012

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How to ensure safer drilling

What is fracking and why is it so controversial?

Edition Four July 2012


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1 OilVoice Magazine JULY 2012

Adam MarmarasManager, Technical Director

Welcome to the 4th edition of the OilVoicemagazine. This month we bring you anotherselection of quality articles from our stable offeatured writers.

The magazine is still free of charge to read, andpresented in a way specifically designed to beread on your screen. We've tweaked and refined

the format and we're now confident that we'vegot it right. So whether you are on your iPad,phone or PC, the OilVoice magazine is easy onthe eyes.

Would your company like to advertise in our nextedition? As the magazine is still quite young our

rates are very competitive. Your advert willappear sandwiched between the industry's bestcontent, and our other premium advertisers likeTGS and RPS.Get in touchto learn more.

As always, we're on a constant lookout forquality content from the industry. If you'd like tocontribute articles to OilVoice youknow what to

do!

Adam Marmaras

Managing DirectorOilVoice

Issue 4 July 2012

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Contents

Featured AuthorsBiographies of this months featured authors. 3Sometimes the oil industry just makes money - no matter what it does By Larry Wall 6Insight: Free is the way...By David Bamford 8Review: Don't steal from us Argentina...By Richard Etherington 9Recently added companiesThe latest companies added to the OilVoice database 11Review: Is there any oil offshore East Africa?By David Bamford 12Insight: Finding more UKCS oil...By David Bamford 15Clearing the air - Oil, subsidies, imports, exports, ownership, alternatives andmoreBy Larry Wall

18

What is fracking and why is it so controversial?By Matt Rawlings 26Bowleven plumbing 2009 lows... Material undervaluation provides a potentiallyvery attractive buying opportunityBy Richard Jennings

27

Ithaca Energy - Recent takeover collapse now offers opportunity to the bullsBy Richard Jennings 29Featured UniversityThis month we are featuring University of Ibadan 40Understanding U.S. gasoline pricesBy Larry Wall 41Heritage Oil - Unloved, forgotten and materially undervaluedBy Richard Jennings 44How to ensure safer drillingBy Richard Kluth 53Exploration: How to find more oilBy David Bamford 54Significant changes taking place in U.S. Oil & Gas industry By Larry Wall 56Fund raising CFO's are vital outside the FTSE 250

By Kris Hicks 60Fracking - Gas drilling and environmental threatBy Keerthana Karthik 61Due diligence in the oil industryBy Michael Littlechild 63


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Featured Authors

OilVoice is always on the lookout for quality, original content. We receive submissionsfrom people in the industry on a regular basis, who in turn benefit from our large userbase. You get a chance to broadcast to the industry and spread the word, and we get

fantastic original content.Get in touch for more details!

Richard Etherington

OilEdge

Richard Etherington, 24, works as a freelance journalist. Richard, a BAHons Political Science graduate, is also a fully trained sub-editor andreporter. He is a former equities reporter and columnist, who specialisedin small cap drilling and mining companies during which time he built upan impressive portfolio of industry contacts.

David Bamford

OilEdge

David Bamford is non-executive director of Tullow Oil, and a past head ofexploration, West Africa and geophysics with BP.

Matt Rowlings

McLaren Software

Matt Rawlings, an experienced journalist currently working with McLarenSoftware.

Richard Kluth

Pulse Monitoring

Richard has been working in the upstream oil and gas sector since 1994and has extensive experience in monitoring and measurements both inthe subsea and down-hole domains and across multiple disciplinesincluding drilling and production.

Kris Hicks

AVA Energy

Kris has spent the last 13 years working with senior talent in the energyand infrastructure sectors, initially with a large global FTSE organisation,where he progressed to become one of their leading consultants.

Keerthana Karthik

GAJ Industrial Supply

Keerthana Karthik is a blogger who writes on industrial supply products.

She at present blogs for Gajindustrialsupply, a global ecommerce retailerof high heat pump, jet pumps, Monoblock pumps, ac motor, three phaseinduction motors, water pumps, air compressor and more.
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Richard Jennings

Spreadbet Magazine

Richard Jennings' background is as an equities fund manager, beingresponsible for in excess of half a billion pounds at a local authority fund.

He qualified as a CFA in 2000 and has been an active personal investorover the last 10 years, recently starting Spreadbet Magazine to enhancetraders understanding of the markets with quality and thought provokingfeatures.

Michael Littlechild

GoodCorporation

Michael takes responsibility for the delivery and quality ofGoodCorporation's on-site assessment work. He has led assessments inEurope, the Middle East, Asia, Africa and the US and specialises in the oiland gas sector and in anti-corruption policies and systems. He frequentlywrites on business ethics and anti-corruption measures.

JobsTheOilVoice Jobs boardis fast becoming the place candidates look for their next move inthe industry. Featuring adverts from top draw recruiters, CV upload capability, and aneasy application process. New jobs are appearing every day, so be sure to bookmark it.

Company Directory

3330 company profiles, 5208 offices and 10765 people - all searchable by keyword andlocation. You can even export your results as an excel file. So the next time you aresearching for a company or person, be sure togive it a try.

AdvertiseOilVoice traffic numbers continue to climb and climb. If you'd like to reach a globalaudience of oil and gas professionals then it's easy to run an advert with us. We have

solutions for every budget, soget in touchwith us to discuss how we can help promoteyour business now.

EventsLet's face it, there are a lot of events in the oil and gas industry. It can be hard to keeptrack. TheOilVoice Events Board contains hundreds of upcoming events, complete withdescriptions and calendar bookmark functionality.

Training CoursesYou can never stop learning about the oil and gas industry. How do you find the coursethat's right for you? By visiting ourTraining Courses section.

Free Membership

Over the past ten years we've grown to over 30,000 members. If you're not a memberthen you shouldstart now, it only takes a second. Then you'll be free to post job adverts,events and press releases.
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Sometimes the oil

industry just makesmoney - no matter

what it doesWritten by Larry Wall fromLarry Wall

Sometimes, a business cannot help but make money. This is the case with the oil

industry today. Because of speculation, uncertainty in the Middle East and increasedglobal demand, oil is nearing record highs.

The consumers do not like that because it means the price of gasoline is increasingand they blame the U.S. Oil companies of making unfair profits.

This is one of the cases where you cannot help but make money, mainly because oflaws that are on the books in the United States. Let's walk through the steps.

Oil Company CESB produces oil in the United States, onshore and in the Gulf. Theydo not necessarily send it to the refineries they own, they send it to the nearest

refinery that can handle that grade.

However, people want lower prices and suggest that all the oil companies agree tolower their prices. Well if they all come together and decide as a group to lower theprice, they have just violated the anti-trust laws. Oil companies cannot and do notdiscuss prices with each other.

But say we get pass that hurdle, and the price of U.S. produced oil is lowered.

They are going to then get sued.

First, the federal government will sue for the underpayment of royalties on oilproduced in federal waters. Even if the oil sells for less than market value, thefederal government is going to demand that royalties be paid on market value andnot sale price. So the oil companies have to pay royalties on income they nevermade.

If the oil is produced onshore, in Louisiana for example, the state is going to sue forthe underpayment of severance taxes. The tax is levied on the value of the oil andnot necessarily the price of oil.

The state and individual landowners are also going to sue over the royalty issueagain.
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So we get pass all of that and the oil goes to the refinery. But the refinery also has tobuy foreign oil to meet its demand. How do you convince the foreign producers tolower their prices--you do not.

So, the refineries agree to average the price of domestic and foreign crude and give

up some profit.

The refineries make the gasoline and it goes to the distributors. Now, the distributoris not required to pass on the savings to the gasoline stations, because thedistributors are not owned by the oil companies and most gasoline stations are notowned by oil companies.

So, there is no guarantee that the savings will ever get to the pump.

However, if some gasoline stations do get the savings and pass that savings on tothe consumer, other stations may not. Then you get into the issue of below cost

selling laws. Yes, there are laws in most states that prevent a gasoline station fromselling gasoline below its cost. So, the stations that cannot get the cheaper gasolinesue those stations that can.

Along the way, the unfair trade laws will come up--but that gets really complicated.

Then as the end of the year nears, and the corporate income tax returns areprepared, the government said that the oil companies underpriced the value of its oiland therefore made less than they should have and then levies additional taxes andfines.Some People Will Lose Money

Finally, the stockholders in all of the major oil companies are going to see theirdividends decrease and maybe the stock value go down. They will then sue thecorporate leaders for not achieving maximum return on its investment. Thus, you endup spending a ton of money on legal fees.

You see all those ads on televisions about class action lawsuits and how you may beentitled to a monetary settlement. I was involved in one of those suits. I had financedsome home improvements and the finance company overcharged a large group ofcustomers. I received a check for $1.27. I never cashed it. I just hung it on my wall

(real wall and not Facebook wall).

The price of oil is controlled by the world market. The OPEC nations still control amajor portion of the supply and still set prices. The speculators and day traders reactto the slightest event and the price goes up.

It has been reported in the news recently that oil production in the U.S. hasincreased since President Obama has been in office. Most of that increasedproduction is coming from projects started during the Bush administration and arejust now coming on line. It can take six to seven years to bring a deepwater well online.

So, my point is that oil companies are making money. Thus the stockholders are


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making money, which means a lot of 401K accounts, pension plans and bondholders are making money. It means that people are working, making good wagesand paying taxes and supporting businesses in the communities where they work.

Oil prices will eventually come down and so will gas prices. The oil industry has a

consistent history of ups and downs. We just have to wait it out. If we try tomanipulate the market, we will be doing a great disservice to capitalism and probablydo more harm than good.

As usual, as a matter of full disclosure, I worked for the oil and gas industry as PRdirector of a trade association for 22 years. In December 2010 I was told my positionwas being eliminated and my services were no longer needed. That action did notput the industry on my list of favourite groups. However, the scenario I havepresented is one I mapped out years ago and I believed then, just as much as Ibelieve it today.

View more quality content fromLarry Wall

Insight: Free is theway...

Written by David Bamford fromOilEdge

To everybody who has just returned from the EAGE in Copenhagen, I hopeyou enjoyed yourselves, especially considering how much it cost you andyour company:

So, you took what, 4 days away from the office? Call that a week and let's divide thetypical built up cost of a FTE of 200-250,000 Euros (do we still have them!) by 50 toget a cost of 4-5,000 plus your hotel and travel - hmm, another 1000 at least - plusregistration, somewhere between 500 and 750 depending on your timing. So let'sagree on ~ 7000 in total?

Of course if your company wanted to exhibit; well, my brain isn't agile enough tofigure it all out but I did hear that one well-known oil field services contractor figuredthat all-up it was going to spend ~$800,000 on the EAGE in Barcelona, and decided

to give it a miss!
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And apart from having a 'good time' what do you expect to get out of it that youcouldn't find by browsing companies' web-sites where all their papers, products andservices appear anyway, and for free?

Before I go any further, I should say that I don't mean this as an attack on the EAGE.

There are plenty of other entities, noticeably commercial companies, that chargeamounts getting well into four figures - in , or $ - to attend one of their events.

My point is, to repeat:

We are increasing living in a world where you can download more or less anything,certainly more or less anything that conference presenters and exhibitors are willingto stand up and talk about and put on a slide, for free, more or less instantly - well, ifyou have decent broadband that is. And from the comfort of your own desk or studyat home - without having to fight your way through LHR, ABZ or IAH!

As the author of this points out 'All sorts of things we used toarticle in the Telegraphpay large sums of money for are now nearly or completely free.'

View more quality content fromOilEdge

Review: Don't stealfrom us Argentina...Written by Richard Etherington fromOilEdge

The dust is no closer to settling on Argentina's highly-controversial decisionexpropriate one the country's largest oil and gas firm, YPF. Six weeks havepassed since the Argentine Senate approved the bill to renationalise theindustry giant on April 26, yet the fallout from the move continues to makeheadlines.

While President Cristina Fernndez de Kirchner's restoration of 51% of thecompany's ownership to the state may have won plaudits at home with itsappeal to nationalist sentiment, outside the South American nation the story is

very different.
http://blogs.telegraph.co.uk/news/danielknowles/100160056/the-internet-is-a-profit-and-jobs-destroying-machine/http://blogs.telegraph.co.uk/news/danielknowles/100160056/the-internet-is-a-profit-and-jobs-destroying-machine/http://www.oilvoice.com/description/OilEdge/190b4f24.aspxhttp://www.oilvoice.com/description/OilEdge/190b4f24.aspxhttp://www.oilvoice.com/description/OilEdge/190b4f24.aspxhttp://www.oilvoice.com/description/OilEdge/190b4f24.aspxhttp://www.oilvoice.com/description/OilEdge/190b4f24.aspxhttp://blogs.telegraph.co.uk/news/danielknowles/100160056/the-internet-is-a-profit-and-jobs-destroying-machine/


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By bringing sister company Repsol's 57.4% majority control in the company to anabrupt end, the Fernndez administration has provoked political outcry from anumber of different sources. Unsurprisingly at the front of the queue calling foul playis the Spanish oil giant itself, which has held majority control over YPF since the1990s. The Madrid-based firm has also been supported by both the Spanish

government and the European Union (EU), which have threatened to bring a WorldTrade Organization (WTO) suit against Argentina.

So, what caused Argentina to act? In short, lack of investment. Members of theArgentinian parliament have argued that since Repsol took over YPF, its productionand investment levels have declined rapidly leaving Argentina in a position where itis being forced to import gas for the first time in twenty years. But upon closerinspection, there appears to be more to Buenos Aires' decision. With a basket full ofeconomic problems to deal with (including rampant inflation, commodity pricesmoderating and domestic demand declining), the Fernndez administration isbecoming increasingly desperate in its attempts to protect Argentine industry and to

maintain the level of economic growth it has enjoyed over recent years.

With its protectionist policies, however, Argentine is more likely shooting itself in thefoot than protecting its interest. Indeed, in the aftermath of the takeover of YPF, thecountry's investment climate is likely to remain depressed over the coming quarters.As Pablo Longueira, Chilean Economy Minister, recently noted, 'protectionistpractices' result in lower investor confidence in the region, and shuffles investmentstowards more favourable places such as Asia. Given this, Argentine may soon finditself struggling to raise the substantial investment it requires to develop its promisingshale potential; a move which may see the nation relying even more heavily uponimports in the long term. What is more, it is not just investors that will be givingArgentine a wide berth: by adopting such a strategy the Fernndez administration islikely to trigger a backlash from some of the country's main trade partners - mostnotably the EU.

After the loss of its subsidiary, Repsol has unsurprisingly taken Buenos Aires' actionspersonally and has already taken retaliatory action. On May 18 the firm terminatedits contract to supply liquified natural gas (LNG) to Argentina. Repsol pointed thefinger that state-run firm Enarsa (Energia Argentina) for breach of several terms oftheir contract, including non-payments. Repsol also noted that Enarsa had changeddelivery schedules and wanted to discuss the prices of shipments for LNG. On top of

that, Repsol has been quick to initiate legal proceedings under international lawagainst the Argentina government over the seizure of YPF. Repsol is hoping toreceived payment of up to US$10 billion via arbitration - a judgement which will bedecided by the World Bank's International Centre for Settlement of InvestmentDisputes, should the two sides fail to find a resolution within six months.

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Recently Added Companies

The OilVoice database has a diverseselection of company profiles, coveringnew start-up companies through to

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MCW Energy Group

Fuel Distribution

MCW's strategic plan is to integrate asteadily-growing, but low profit margin fuel

distribution enterprise with an emerging,proven oil sands extraction technologycompany.

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Yaterra Ventures

Oil and Gas

Yaterra Ventures Corp. is an oil and gasexploration and exploitation corporationfocused on acquisition and production inand around the Permian Basin and the

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Currently, the Company's principal activityis petroleum and natural gas exploration,development, and production.

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Brixton Energy Corporation is a Canadiandomestically focused oil and gasexploration company. Exploitation andacquisition plan is to attain high netbackassets with high interest controlled pro

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Rift Energy Corp is an upstream oil andgas company currently focused on

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Ambassador Oil & Gas

Oil and Gas

Ambassador Oil & Gas Limited wasestablished to participate in the explorationand development of oil and gas projects.Ambassador has assembled a balancedportfolio of prospective exploration targets

in the South Australian sector of theCooper / Eromanga Basin.

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Quest Petroleum NL

Oil and Gas

Quest Petroleum is an oil and gasexploration company focused on SouthSumatra, following the grant of the RanauPSC. Ranau covers 2,123km2 of theprolific South Sumatra Basin.

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Ptrolia

Oil and Gas

Ptrolia is the only active oil and gasexploration company in Quebec to see itsstock price go up this past year. Ptrolia isthe only active oil and gas explorationcompany in Quebec to see its stock pricego up this past year.

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Review: Is there any oiloffshore East Africa?Written by David Bamford fromOilEdge

The emergence of East Africa as a petroleum province has been spotted by the

media, especially the UK press where a headline such as 'Improved

technology helps to oil the wheels for East Africa' (The Times, 7th January

2012) is but one of many.

As a recent Finding Petroleum Forum revealed, it is certainly true that improved

technology has had an impact, whether satellite imagery, aero-magnetics, gravitygradiometry or plate tectonic modelling, but where the oil is - and whether the gas

that has been discovered is commercial - requires more careful thought.

I am grateful to Alastair Bee at Richmond Energy Partners, Chris Matchette-Downes

at MDOil and Oswald Clint & Robert West at Bernstein Research for helping me

summarise the current status.

If we go back let's say 10 years, East Africa was completely disregarded bypetroleum explorers. Only a handful of wells had been drilled and there wasn't very

much data but source rocks were generally believed to be absent or poor; the

prevailing view was that there would only be small amounts of gas, if anything.

Actually, this was based on 'Myths, Myopia, Misinformation' as pointed out by Chris

Matchette-Downes in 2005(1). In particular, he identified evidence for contiguous

source rocks, for example in the Early and Mid-Jurassic, which could be in the oil

window offshore. And of course, persistent seeps were known both offshore and in

the lakes of the East African Rift System.

Since 2008, there has been significantly more exploration activity and Richmond

Energy Partners have analysed the current discovery position as summarised in the

table on the next page.
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Courtesy of Richmond Energy Partners

New well results are being announced all the time but the essence is still the same:

Oil has been discovered

onshore in the Albertine

Graben of Uganda (and very

recently in Kenya) - see the

Finding Petroleum

presentation by Shane Cowleyof Tullow Oil(2).

Large amounts of gas have

been discovered offshore - in

both Mocambique and

Tanzania - but no oil as yet.

What has been proposed sofar offshore is that the

youngest source rock is an

Early/Mid-Jurassic marine

shale and so one model is that

this may have been buried

under more sediment than

previously anticipated and is

now in the gas window.

However, this source rock has not been sampled and an alternative explanation is


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that the gas derives from an area of this source rock that has had high terrigenous

input and so is gas prone.

The gas volumes discovered in both Mocambique and Tanzania are significant and

as a distant observer one's immediate response is to think that they are both

candidates for LNG schemes. However, as Monica Enfield of Energy Intelligence

pointed out in her Finding Petroleum presentation(2), this perspective ignores the

focus both host governments will have on domestic issues such as creating a local

market and providing employment in the relatively short term.

As Bernstein Research has noted, a combination of successes - for example shale

gas onshore in the USA, conventional gas in the Eastern Mediterranean and on the

NW Shelf of Australia - have led to there being a large number of global LNGopportunities, for gas to move to either Europe or SE Asia, which may mean that

somewhat more costly East African LNG will have to wait its turn in the queue. Whilst

the Majors may be content to 'bank' gas for the longer term, ready for the day the

price rises and it is needed, as pointed out above this may not at all be in line with

the hopes and expectations of the governments of Tanzania and Mocambique.

The attraction of offshore oil would be that the global price is probably going to

remain high and that a discovery of a few hundred million barrels can be developedfairly rapidly with an FPSO and shuttle tankerage (indeed many tankers pass this

way as they go around the Cape of Good Hope!).

So where might there be oil offshore?

Explorers now have vast amounts of data - from satellites, airborne surveys, field

geologists, seabed cores, national repositories, the huge number of wells drilled

(over 200,000 'wild cats' alone since 1965), publications - to sift through to identify

basins and plays which might work or, in the question I have just posed, might work

in a particular way.

The ability of explorers to spot the next big play depends on their ability to deal with

this veritable Niagara Falls of data, to solve what some have referred to as the 'Big

Data'(3) problem - or opportunity, perhaps?

Deploying a deep understanding of plate tectonics and chrono-stratigraphy -

understanding what gets deposited where and when - is the key process by which


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this is achieved, whereby opportunity is accessed.

It's just my opinion but we explorers may be guilty of laziness, believing - or at least

giving the impression of believing - that offshore exploration nowadays simply

consists of dropping in a regional/exploration 3D seismic survey and then 'no dry

holes' will result. This is far from the truth!

1. East Africa Petroleum Conference, 2005

2. Finding Petroleum Forum, 17th April 2012

3. http://www.findingpetroleum.com/video/385.aspx


Insight: Finding moreUKCS oil...Written by David Bamford fromOilEdge

Now diving into the website of the Bank of England is not a normal activity forme, you understand, but I was searching for a copy of their latest QuarterlyBulletin in which, according to the Times this week, they attribute part of the

UK's drop in productivity to the decline in output from the North Sea; and sureenough I read:

'Norway is similar to the United Kingdom; both have seen falls in energy andutilities productivity over both the recession and recovery periods. This is nota surprise as they extract oil from common waters - the North Sea. Theabsolute fall at the aggregate level is larger in Norway, as extraction andutilities are a larger share of GDP (Table A).(4) As the decrease in oilproduction from the North Sea is likely to be structural rather than cyclical innature, this evidence points to a fall in the level and growth rate of aggregateunderlying labour productivity(Chart 8).'
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For a moment there, I thought The Old Lady of Threadneedle Street was getting intoexploration geology and was perhaps suggesting we should pursue morestratigraphic traps or perhaps even fractured basement! However, 'structural' heremeans - I take it - that the decline is inevitable (actually driven by the rocks) andthere's nothing we can do about it.

Oh really!

To repeat myself, there is an old adage that runs "The best place to find oil is in anoil field!"

As global exploration gets more difficult, there is a major prize to be gained byincreasing flow rates and improving recovery factors in existing fields. In anypetroleum province which is very mature in exploration terms, such as the NorthSea, it would be better for companies to stop 'wildcat' exploring and focus onenhancing production in and around existing oil & gas fields.

Increasing recovery factors depends on a range of technologies - surveillance,'smart' wells, EOR etc. Nevertheless, worldwide, just a 1% increase in the globalrecovery factor represents almost 90 billion barrels of oil, equivalent to replacingroughly 3 years of production at current levels.

Wherever serious studies have been undertaken, truly astonishing volumes of oil canbe contemplated from increasing recovery factors using technologies that are knowntoday.

Certainly, it seems reasonable to believe that the current ~10% of all existingdiscovery volumes that has actually made it to production is very much a lower limit.In many instances, a rising oil price will ensure that primary/secondary/tertiaryrecovery projects are economic although in some instances it may be necessary forgovernments to give tax incentives to help improved recovery projects, for examplethose based on CO2-EOR, to bring them into existence.

As an example, Gluyas has estimated, by comparing the UKCS with West Texas,that an additional 2.7 - 8 billion barrels of technical reserves could result from CO2injection, corresponding to an increase of recovery factor in the range of 4 to 12%. Inaddition there are long term, indeed historic, estimates that improved reservoir

modeling - and monitoring - could add 10% or more to recovery factors.

I'm for a bit of 'cyclicity' where we push the recovery factor for every UKCS oil fieldup to 70%!

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Clearing the air - Oil,

subsidies, imports,exports, ownership,alternatives and moreWritten by Larry Wall fromLarry Wall

While gasoline prices have been declining recently, they are still higher that some

American consumers would like. In addition, there has been a growing movement to

find alternatives to crude oil, for environmental reasons and at one time the fear that

the U.S. was growing too dependent upon foreign sources of oil.

With the discoveries of vast amounts of natural gas and crude oil in shale formation,

there is the belief by some that the United States can achieve energy independence

if it can find an alternative to crude oil. Also the recent decrease in the global price of

crude oil and the increased reserves is going to hamper or at least slow efforts at

finding alternative motor fuels.

Ideas such as wind turbines and solar panels have been around for a long time and

are in real-situation use. Electric cars are on the road, but have limited mileage

before the good old internal combustion engine takes over.

There has been talk that all of the "subsidies" received by the oil and gas industry

should be taken away and use to develop the alternative fuel industry.

People believe that a few people own the big oil companies and they are making

obscene profits.

It is time to take a closer look at these issues. As a former Public Relations Director

for a Louisiana-based oil and gas trade association for 22 years, I learned a lot about

the industry. One of my jobs was research, finding sources and verifying the

statements they were making or the information they was presenting. Some of it was

accurate and we used it. Some of it was not and we discarded it. Now, it must benoted that the industry I worked for also fired me after my 22 years of service. So it is
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possible that I am trying to get back in the industry good graces, or trying to get back

for being fired. Neither is the case. I was laid off, to use a nicer term, because the

trade group was going in a different direction that did not include me. Despite that, I

still have great respect for the industry. Thus as the old saying goes, "I have no dog

in this hunt." I am just trying to get the facts out and clear up some of the confusion.

There Are No Subsidies-There Are Tax Incentives

There is more to oil than gasoline and BTUs. The most gasoline you can get from a

42 gallon barrel of oil is 21 gallons, usually a little less and in some cases, depending

on the quality of the oil a lot less. If you cannot make gasoline, then you make other

things. The typical barrel of oil can be turned into 19.4 gallons of gasoline, 10.5

gallons of diesel fuel and heating oil, 4.1gallons of jet fuel, 1.7 million gallons ofheavy fuel oil. 1.5 gallons of propane, 1.3 gallons of asphalt and road oil, 1.1gallons

of petrochemical feedstocks and 5 gallons of other products.

The list of products that are connected with oil is almost endless. However, the first

order of business is to clear up the confusion about subsidies

A subsidy is when the government or some other group gives money to help

someone. In the context being discussed here a subsidy would be money given upfront by the government to help a company develop or improve a product, such as

alternative fuels. If the project does not work, it is unlikely that the subsidy will be

repaid.

A tax break, usually referred to as an incentive when it is first granted, is the first step

the government will take to lower the tax burden, help it be more competitive with

foreign industries or compensate it for certain business expenses.

Individuals get tax breaks. When you file your tax return you can take a deduction for

charitable contributions, for losses you incurred in case your home burned down, a

portion of the medical expenses you incur and so on down the line. If you are over

65 you get an extra deduction just for being old. If you are blind, you get another

deduction.

After a tax incentive becomes or proves its success, it is then referred to as a tax

break and then, when the economy goes down the tubes, as it does frequently, the

tax break becomes a tax loophole or giveaway and therefore there is usually an


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immediate call to end it. Those receiving the incentive will usually fight it and not very

much happens.

After he first took office, President Obama had a budget plan that was going to be

tough on the oil and gas industry. I happened to be assigned the task of reviewing

that plan. The key points regarding the oil and gas industry are as follows:

Repealing the expensing of Intangible Drilling Costs

Repeal of Percentage Depletion

Repeal Marginal Well Tax Credit

Repeal Enhanced Oil Recovery Credit

Increases Geological and Geophysical Amortization Costs

Excise Tax on Gulf of Mexico Production Repeal of Manufacturing Tax Deduction

Implementation of $4/acre fee on Gulf leases designated as non-producing

(use or lose)

Repeal Passive loss exception for working interests in oil and gas properties

Abandoned Mine Lands Payment in Certified States

Repeal Energy Policy Act fee prohibition and mandatory permit funds

reinstatement of Superfund (oil industry pays 57 percent)

Repeal Last In First Out reserve accounting

Attempt to repeal the ability to defer foreign income (subject companies to

double taxation-here and abroad.

If you repeal all of these tax breaks, it was going to cost the industry $34 billion over10 years. Most would say the industry could afford it. Others would say that thegovernment would just waste it. Both may be true, but you need to look at some ofthese issues.

For instance, the repeal of the manufacturing tax deduction affects more than the oilindustry. That is a tax break that every manufacturing entity in the country receives.Yet, the plan called for just repealing it for the oil and gas industry. That did not seemquite fair.

The second item, repeal of the percentage depletion, only applies to independentproducers, and not the major oil companies. So, is that necessary?

Adding an excise Tax on Gulf of Mexico Production really does not make any sense.The government receives a lease payment every year for the offshore tracts.Companies pay huge bonuses up front to try and win the tracks and the governmentreceives a royalty for all the oil and gas produced from that leased. So, where is the

logic or fairness of adding an excise tax to that production? Also, keep in mind,producing oil in the Gulf of Mexico is not easy or cheap. By the way, royalty income


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is the second largest source of revenue for the United States Government. Thepersonal income tax is the largest.

The idea of implementing a $4 per acre fee on Gulf of Mexico leases that aredesignated as non-producing does not make sense. First, because a lease does not

have a well on it, does not mean it is not producing. With new drilling techniques inplace, a well on one lease can produce oil from several adjacent leases, thusreducing the industry footprint in the Gulf. If a lease really is a non-producing lease, itreverts back to the government after a certain period of time, but the lease paymentsare made during that time period. Again, there is no rationale.

Next there was going to be an attempt to repeal the ability to defer foreign income. Inother words, when a U.S. based company makes money in another country, it paystaxes in that country, and normally defers that income when paying its federalincome taxes. The Obama plan would have the companies paying foreign taxes andthen paying federal taxes on that same barrel of oil, even though it was produced in

another country. That did not seem to make any sense.

The other items in the Obama plan are more technical and would take too muchspace to explain them. Nothing was ever done with the plan. So for now the statusquo on that item remains the same. However, it is important to remember, that noneof these issues give money to the industry. They provide tax breaks. If the tax breaksare repealed, the cost of doing business will increase and just like any business, youpass on your higher operating cost to the consumer. Therefore, if this plan wasenacted, the federal government would get $3.4 billion more each year in incomeand consumers would pay another $3.4 million each year for gasoline, diesel and allthe oil and gas products we use each day. The planning was not very good.

Ownership and Profits

If you compare the profit margins for major manufacturing sectors, you will find thatthe major integrated oil and gas companies have an average profit margin of 7.9percent. Wineries and distillers have a 17 percent profit margin, internet informationproviders have a 23.8 percent profit margin and magazine publishers have a 58.1percent profit margin, according to FuelFix by StatOil, Oct. 27, 2011.

One company that has been mentioned frequently is Exxon, which had about $40

billion in profits during 2011.

However, what does not get mentioned is that Exxon spent $412 billion during theyear. That is a little less than a 10 percent return. That may be a little better than theoverall average of the industry, but close to other types of industry operating in theUnited States. It is a very simple law of economics, if you know what you are doingand you spend a lot of money doing it, you are probably going to make a lot ofmoney.

However, with success come criticism and the argument that big oil companies areowned by other big oil companies and by the executives who make millions of

dollars.


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Oil companies have joint ventures, where two companies will go in together to do aproject, with one company being the operator and the other supplying cash, accessto a pipeline, access to leases, use of boats, barges, helicopters, etc. It is somethingcalled cooperation. It works in the industry. Perhaps Congress could give it a try.

The actual ownership of oil companies may be surprising. The basic breakdown isthat 20.6 percent are owned by asset management companies, 21.1 percent ownedby individual investors, 31.2 owned by pension funds, 17.7 owned by IRAs, 2.88 bycorporate management of oil companies and 6 percent by other investors. Simplystated, there is No Mr. Exxon or Mr. Chevron who is making all the money.

We Can Do It Ourselves

With the discovery of the new shale plays for oil and gas, an attitude is developingthat we can provide our own oil at our own price and not be "held hostage" by foreigncountries. That is not going to happen anytime soon. Saudi Arabia has 17.7 percent

of the world's crude oil supplies. Other nationalized oil companies hold lesseramounts, but far less than the major oil companies.

U.S. dependency has dropped to 35 percent, after being as high as 60 percent ormore. However, we cannot drill the wells and produce the shale oil and gas quicklyenough to meet our daily needs. In fact, the concern over "fracking", a technique thathas been used for years in drilling vertical wells and is now being used in thedirectional wells that produce the shale oil and gas, is coming under attack, whichmay slow that process.,

Natural gas prices have dropped dramatically, because we never had to importnatural gas from the other side of the world. We did get some from Canada, but thatwas for convenience purposes more than anything else. Thus the abundance ofshale gas has created an excess supply. When supply exceeds demand, the pricegoes down. That is why Liquefied Gas Terminals are being built or reactivated, in anattempt to find a market for the excess natural gas.

Even if the United States could produce enough oil to meet daily needs, the oilcompanies are going to charge the global market price. This is not to be greedy. Thiswill be done to meet the demands of all those shareholders in the previous graph.They are going to want the maximum return on investments so the value of their

stocks will grow and dividends can be paid.

The United States, which collects sizable royalties from production in the Gulf ofMexico and on federal lands, is going to want the royalty payments based on theglobal market price. The producing states like Louisiana and others, where aseverance tax or production tax is collected, based on the price of oil, are going tobase collection of that tax on the global price.

Now does anyone want to guess how the global price is going to be set? It will bedone by the OPEC nations. If they cut back production and thus the amount they sellto other countries besides the United States, the price is going to go up. Also, this

happened once before, they opened the taps and drove the prices so low manyproduces could not afford to compete in that market and had to shut in production.


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We enjoyed very cheap prices for a while, but it did not last very long. During thattime a lot of people lost their jobs and a lot of equipment was stacked and neverused again.

Looking At the Alternatives

A lot of discussion has been devoted to developing alternative forms of energy. Thisis not going to be a discussion of which one is better or worse. It is going to be adiscussion regarding the practical implementation of alternative energy.

When it was decided that tetraethyl lead was dangerous and should be removedfrom gasoline as an octane enhancer, it took ten years to phase in the use of thatgasoline because of the fleet of older cars on the road that could not user the newerunleaded fuels that were being developed.

Now we are talking about cars powered by natural gas, liquefied natural gas,

electricity and numerous other ideas. The alternative fuel movement is going to haveto come together and pick a fuel that will be used for daily use. The carmanufacturers will have to design the cars and someone will have to build theinfrastructure, if the existing infrastructure that moves gasoline cannot be used.

More than likely the alternative fuel industry is going to have its hand out looking forsome type of subsidy. It would be unfair to ask the existing energy industry to financethe new industry that is going to take away a part of their business. However, we areprobably a long way from that point. Renewable energy accounts for only 7 percent,which includes solar energy 1, percent, hydroelectric, 34 percent; geothermal, 9percent; biomass 53 percent and wind energy 7 percent.

Why Are We Exporting Oil and Gasoline

The United States does export some oil and a considerable amount of gasoline,diesel and other petroleum products. The oil is exported as a convenience. Somegoes to Canada, Mexico and to Japan from Alaska.

Remember that only half of a barrel of oil can be turned into gasoline. We producemore gasoline than we need. We buy oil by the barrel. We sell gasoline by thegallon. Therefore, it makes sense to sell the excess refined products instead of

letting them accumulate. By selling them, the U.S. balance of trade is improved andforeign countries also develop a greater interest in our oil and gas industry. TheEnergy Information Administration, which is a branch of the U.S. Department ofEnergy, maintains extensive records on imports and exports.

The EIA records show that in 2011 the United States exported 17 million barrels ofcrude oil, mostly to Canada and Mexico for convenience purposes. It just makessense to send the oil to the nearest refinery. In the same year the U.S. exported 1.05billion barrels of refined products, with approximately 1 billion gallons going toMexico, again for convenience purposes. Mexico is in the process of building newrefineries. That number will decrease in future years.

This presentation has touched on tax breaks, alternative fuels, governmental


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involvement, products from a barrel of oil and other related items.

The oil and gas industry is really four industries, production, refining, pipelines andmarketing--the places where you buy your gasoline. Those are the same places thatpost the price each time it changes in numerals that can be seen from a great

distance. I can assure you the grocery store or department stores do not advertiseitems where they have been forced to raise prices. Gasoline prices are alwaysposted.

Just a few points to remember

The U.S. levies a tax of 18.4 cents per gallon of gasoline at the pump.

Most, if not all, the states levy their own gasoline tax. These funds do not go to theoil companies. Thus, the price at the pump, in the United States, includes the taxesthat are collected by the states and the federal government.

Prices are dependent upon the cost of crude, the value of the euro against the dollar,political unrest in the Middle East, overall economic conditions and speculation. Theoil and gas industry has no control over those factors and just like any other industryit must react to those factors.

However, the oil industry has to react daily and the price change can show up thatday. The garment industry may have to react daily, but the prices of blue jeans donot fluctuate like the price of gasoline.

View more quality content fromLarry Wall
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Doing more with dataKuala Lumpur,October 24-26, 2012

Finding Petroleum / Digital Energy Journal is running 3 one day conferences in Kuala Lumpur, Malaysia, onOctober 24, 25 and 26 on doing more with petroleum data, covering drilling, subsurface and production data.

These 3 events will present the most exciting new technology to help manage and work with all aspects of datain the upstream all and gas industry.

The conferences are for people who work with drilling, subsurface and production data, who want to learn aboutnew ideas and new technologies to make their data work harder, to improve efficiency and safety of drilling,ability to find new reservoirs and extend existing ones, and maximise production.

The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October21-24.

Attendance is free - register now to secure your place.

Reserve your place now at FindingPetroleum.com

October 24 - Doing more with with drilling dataOctober 25 - Doing more with subsurface dataOctober 26 - Implementing data tools faster

The aim is

(i) to make it easier for people working in KL oil and gas companies and service companies to find out moreabout the latest new technology to help manage data, and

(ii) to provide technology companies attending the National Data Repositories event with a chance to meet alocal audience during the same trip.

The events are supported by the South East Asia Petroleum Exploration Society and Energistics, and timed toco-incide with the Energistics National Data Repositories conference in KL.

The events will be free to attend.

For days 1 and 2, we will look for financial contributions from speakers - in the range 14600 MYR / USD 4760 /GBP 3000 for a morning slot and MYR 9750 / USD 3200 / GBP 2000 for an afternoon slot. Sponsorshipopportunities are also available.

The third day "getting data implemented faster" will be panel discussions, chaired by Jerry Hubbard, CEO ofEnergistics, and participants in the first 2 days' sessions will be invited to join.

For enquiries about sponsorship and speaking please contact our sales manager JohnFinder on +44 208 150 5292, e-mail [email protected]


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What is fracking andwhy is it socontroversial?Written by Matt Rawlings fromOilVoice

Without being involved in the industry or campaigning strongly either for or againstthe process, fracking is just something you vaguely remember from a few sciencelessons you had at school that you can't actually explain.

Hydraulic fracturing, to give it it's proper name, is the process of drilling into the earth

and setting off a series of small explosions to shatter and make cracks in the solidrocks, such as shale, in order to release the gas stored inside. Water is then injectedinto the rock along with chemicals and sand to encourage the gas to escape to thetop of the 'mine' or 'well.'

The most common practice is performed by drilling horizontally, i.e. across the rock,but it is also regularly performed vertically, going straight down into the ground, andthis enables the extractors to find new sources of gas, or to extend their currentpipelines. The horizontal drilling creates new channels within the rock, meaning thatthe gas is actually extracted much quicker than the more traditional methods.

While this may sound like a pretty routine drilling procedure, simply extracting gasfrom the ground, it is viewed as highly controversial and has produced numerouscampaigns calling it for the practice of fracking to be ceased, one high profile versionin the UK was back in 2011 after two small earthquakes near to Blackpool. Thecampaigning is down, mainly, to the chemicals being used in the extraction process.

The water used in the process comes from within the well itself, but the primaryconcerns among campaigners relate to the chemicals used, and the potential forthem to find their way into drinking water.

The issues, which prompted the Blackpool protests in 2011, came about after twosmall earthquakes - registering 1.5 and 2.2 on the Richter scale struck inland, andafter complaints were received that fracking was to blame, the process was stoppedwhile a full investigation was carried out.

Those working in the industry itself have claimed that shale gas is safe, and theyhave said that any incidents of polluted drinking water have been down to simplepoor practice, as opposed to accidents.

It isn't just the UK where issues have occurred, with one highly documented case inAmerica where a household claimed that shale gas found its way into their drinking

water pipeline and caused the tap water to actually ignite.
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So if it's a potentially dangerous process with so many people against it, why havethose in the industry persisted with it, there must be some real advantages of shalegas to make the fracturing process a worthwhile perseverance and method ofextracting gas right? Put simply, yes, there are.

Shale gas reduces the cost of gas on the market, and is actually contributing to aworldwide flow of gas, which has halved the domestic market price in the UnitedStates. In the UK, a number of research companies have even predicted that thereare substantial amounts currently in the rocks under South Wales, with expertsestimating the value at around 70bn.

View more quality content fromOilVoice

Bowleven plumbing2009 lows... Material

undervaluationprovides a potentiallyvery attractive buyingopportunityWritten by Richard Jennings fromSpreadbet Magazine

The folly of the stock market never ceases to amaze me. Below is a chart ofBowleven over the last 5 years and you can see how the stock twice nosed a high ofover 400p, whilst in the intervening period falling to a low of 20p. For those punterslucky enough to pick up stock during the depths of investor despair that wasprevalent in early 2009, 20 times your money could have been made at the peak(although its a trader with cajones of steel that can carry a profit of that magnitudewithout selling) in early 2011 - just 2 short years.
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At the current price, we are closing in on the very same levels touched in 2009 asthe price fell to 20p - it is worth noting that the last time the shares approached theselevels was during a period when the Company's very existence was in question dueto the court case that was ongoing at the time with Peter Garnham and whereownership of the Company was being contested. This was later resolved with the

case being dismissed and so no longer hangs over Bowleven.

Intelligent investors can be forgiven for sratching their heads at this recent priceactivity given the tentative takeover approach that was made by Dragon Oil inFebruary of this year when the shares sat at 75p. This very undervaluation was ofcourse what attracted Dragon Oil to the company in the first place and prices of 150-250p were being bandied around by institutional holders and analysts alike asrepresenting 'fair value' for the company. Well ladeez and gentlemens, such is theway with the stock market that a price of 59p has now been presented to you to pickup shares in Bowleven. The company actually has net cash of circa 35p at themoment (although this is diminishing) and so the entirety of its valuable exploration

portfolio is now valued at just under 60m.

Although Dragon Oil walked away from Bowleven, it was confirmed that DGO did notin fact look at the Company's books and many pundits put the termination of the briefflirtation down to the fact the the 'steal' basis of an acquisition was not possible giventhe run up in the share price back to a more realistic discount to its NAV. This doesnot detract from the deemed value in Bowlevens Cameroon licences and mostanalyst estimates of core NAV actually centre around the 200p mark.

Let's not forget too that late last year Kevin Hart raised a further 80m through aplacing at 103p - when placings of this magnitude occur, the shares are typically

issued at a discount to the true worth of the Company in order to attract the freshinstitutional money on board. Well, the Company is now further advanced in their key


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Sapele fields drilling program and yet you have the opportunity to pick up shares at a40% discount to those 'savvy' institutions

You might well be asking just how the stock market can present investors with thatappears a one way ticket? As ever, there is always a catch. In the first instance, I

doubt that the recent oil price weakness we are seeing or indeed the general stockmarket torpor are the true reasons for the price weakness that has been put about bysome quarters of the press.

What the market is saying is that the cost of raising funds for such Oil explorers (aswe have seen with Xcite Energy in recent months) is rising and the debt markets areunlikely to play ball at this point in time. This leaves another potential equity fundraising or alternately 'farm in' (dilution of the Company's interest in its explorationportfolio by way of a 'major' being brought in, in exchange for a share of the spoils)as the likely options for Bowleven. The company needs to raise approximatelyanother $250-300m. At the current market cap,doubt that Kevin Hart will take the

more damaging route of further equity issuance but rather look to a farm inarrangement.

At 59p, the downside looks to be almost non existent yet the upside remains 200p+,and potentially a lot more if the drilling program scheduled for this year and next issuccessful. 4th Conviction Buy for Spreadbet Magazine.

View more quality content from

Spreadbet Magazine

Ithaca Energy - Recent

takeover collapse nowoffers opportunity tothe bullsWritten by Richard Jennings fromSpreadbet Magazine

Ithaca Energy has been in the news for all the wrong reasons recently for those long

the stock following the aborted takeover by various unnamed suitors and that hasresulted in a few singed fingers...
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Ithaca's focus is on the North Sea region and its strategy aims are as follows:

Fast track appraisal and development of oil and gas fields in the North Sea.

Acquire producing fields or undeveloped discoveries that:

o (a) Are not material for larger companies

o (b) Need technical or financial investment

o (c) No longer fit with an existing company's strategy and business

model.

Use tried and tested development and production technologies.

Employ in-house technical excellence to generate development and

acquisition opportunities. Participate in licensing rounds to gain acreage positions around its core

assets.

Ithaca's Core assets & Company background

Ithaca's primary assets are in four main areas of the North Sea:

Inner Moray Firth

Outer Moray firth

Central North Sea

Southern North Sea

Inner Moray Firth

Beatrice

In 2008 Ithaca entered into an agreement to lease the Beatrice field, the pipeline toshore and the Nigg storage facility from Talisman for a minimum period of 3 years.

The Beatrice Field, in which Ithaca holds a 50% interest, is operated by Ithaca and is

the largest oilfield (approximately 485 MMbbls of stock tank barrels of oil initially in

place) in the Inner Moray Firth area. Beatrice has produced in excess of 163 MMbbls

to date.

Over the second half of 2009 Ithaca undertook a program of well interventions on

wells producing at the Bravo platform. The result of the Bravo workover campaign

increased production from the Bravo facility by 1,500 bopd (750 bopd net to Ithaca).


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The Company has undertaken an extensive workover campaign on Alpha platform

wells, which has involved the replacement of down hole equipment and the

recompletion of 4 production wells.

Jacky

Ithaca was awarded block 12/21c in the 23rd Licensing Round which contained the

previously drilled 12/21-2 well. Ithaca and partners drilled the 12/21c-6 well in 2007

which encountered oil-bearing Beatrice sands, 175 feet above the oil in 12/21-2, as

predicted.

Jacky came on-stream on April 6, 2009. Initial production was stabilised at rates in

excess of 10,000 bopd.

The field has been developed with one production well and one water injector well.

Polly

The Polly discovery lies 2.5 km to the east of the Beatrice field and is an elongate

structure which straddles blocks 11/30a and 12/26c. Ithaca acquired the Polly

prospect through the 23rd UK Licensing Round.

Development of Polly has been considered via either a subsea completion tied back

to the Jacky platform or a deviated well drilled directly from the Beatrice Bravo.

Development is currently not, however, considered commercially viable.

Outer Moray Firth

Athena

The Athena field is situated in block 14/18b in the Outer Moray Firth area of the

North Sea; lying approximately 18 kilometres west of the Claymore and Scapa fields

and the associated production facilities. Ithaca currently holds a 22.5% interest in the

Athena Field. The reservoir has been evaluated by Sproule Associates to contain 2P

reserves (gross) of 26.1 million barrels of oil.

Joint Venture partners in the Athena field are: Ithaca, operator (22.5%), Dyas UK

Limited (47.5%), EWE Energie AG (20%) and Zeus Petroleum Limited (10%).


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Central North Sea

Cook

The Cook field is located in Block 21/20a of the Central North Sea approximately

175km east of Aberdeen and 20km north of the Gannet Cluster development.

The field was discovered in 1983 and the first well encountered oil in the Fulmar

Formation and tested 7,330 bopd of 40.6 API oil and 6.7 Mmscfpd of gas.

The field was brought on-stream in April 2000 following development drilling in 1999.

The annual production rate for oil peaked in 2001 at a rate of 16,800 barrels of oilper day.

The single well behind the Cook development is regarded as one of the strongest

and most efficient wells drilled in the UK sector of the North Sea.

Greater Stella

The Greater Stella Area became a core focus for Ithaca with the purchase of a66.66% working interest in the Stella and Harrier undeveloped discoveries from Shell

and Esso in August 2008. Ithaca expanded its portfolio in this area with the award of

one part block in the area in the 25th UKCS Licensing Round and one part block in

the 26th Round. These blocks contain the Hurricane and Helios undeveloped

discoveries respectively.

This area lies in the heart of the prolific Central Graben of the North Sea and is

surrounded by numerous producing fields and undeveloped discoveries. Major E&P

companies including Total, Shell, ExxonMobil, BG, BP, Maersk and ConocoPhillips

operate platforms and pipelines in the area which provide several options for the

export of hydrocarbons from the development.

Having taken over operatorship of the Stella/Harrier block from Maersk in November

2009, Ithaca drilled an appraisal well on the Stella discovery in early 2010. In Q3

2010 Challenger Minerals (CMI) completed on an Earn In deal for a 18% equity in

the Stella/Harrier license by funding 27% of the appraisal well cost.


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The development scheme is likely to involve up to 5 production wells drilled from a

sub-sea drilling centre on Stella and 2 further production wells drilled on Harrier. The

Harrier centre will be tied back to the Stella where the hydrocarbons from both fields

(oil and gas) will be combined.

Stella

The Stella development lies in the Central North Sea, 15 km northwest of the Joanne

Field and was discovered in 1979 by well 30/6-2 when gas/condensate was

encountered throughout a 25 ft section of Paleocene Andrew sand. Oil was also

observed in the underlying Ekofisk Chalk reservoir. Subsequent appraisal wells

achieved flow rates of 2,900 boepd of condensate and 23 mmscf per day of gas from

the Andrew sands.

Ithaca drilled an appraisal well and a sidetrack (30/6a-8 and 30/6a-8Z respectively)

on the Stella discovery in 2010.

Harrier

The Harrier discovery lies 10 km south of the Stella discovery, also in Block 30/6a.

The accumulation was discovered in 2004 by well 30/6-4 when gas/condensate wasencountered in both the Ekofisk and Tor chalk reservoirs in a salt induced anticlinal

closure. Appraisal sidetracks 30/6-4Z, 4Y and 4X were drilled immediately following

the discovery to appraise, core and test the reservoirs.

Following the successful appraisal of the Stella discovery, detailed planning has

been undertaken for a joint development of Stella and Harrier through a Greater

Stella Area Hub (located at Stella).

In their December 2010 reserves audit, Sproule have assigned net 2P reserves of

11.69 mmboe to the Harrier discovery.

Appraisal drilling of Hurricane in early 2012 will test the accumulation in the Eastern

Lobe of the structure. The well is being designed as a future producer. The appraisal

programme will include a drill stem test to confirm flow rates and reserve estimates,

and take a fluid sample for analysis.


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Helios

Block 29/10d was awarded to Ithaca in the 26th UKCS Licensing Round in 2010.

The block lies within the Company's core Greater Stella area in which the Stella and

Harrier discoveries are under development, and the Hurricane discovery is to be

appraised in early 2012.

In 1969 well 29/10-1, lying within Block 29/10d, was drilled and both gas and

condensate was found in the Andrew Sandstone; the equivalent and principle

reservoir of the Stella discovery now under development. Hydrocarbons were

recovered from an FIT test.

The Company is currently evaluating the potential appraisal drilling of Helios along

the southern flank of the structure.

Southern North Sea

Anglia

The Anglia field lies approximately 60 km from the UK coastline and approximately11 km southwest of the Clipper field.

The field was discovered in 1972 by well 48/18b-1 when dry gas was encountered in

the Rotliegendes Formation.

Cumulative production from the Anglia field at the end of 2009 was 194 bcf of dry

gas with an estimated recovery factor of 60% to date.

Topaz

The Topaz Field lies approximately 145 km from the UK coastline and 15 km

southeast of the Schooner Field. The field was discovered in 1987 by the 49/1a-3

well which encountered a 130 ft section of gas bearing Carboniferous Westphalian

C/D and Ketch sands.

The current single producing well (49/2a-6Z) was drilled in 2009 as a twin to the

discovery well and tested at 30 mmscfpd. First production was achieved in

December 2009.


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Carna

Blocks 42/52b, 43/16 and 43/21b were awarded to Ithaca in the 22nd Licensing

Round in 2004. Block 43/22c contains the eastern extension of Carna discovery and

was awarded to Ithaca in the 23rd Round.

The Carna discovery straddles blocks 43/21b and 43/22c in the Southern North Sea

and lies between two producing fields, Garrow and Kilmar, which together constitute

the Tors Development.

The Carna exploration well, 43/21b-5, was drilled in 2008. The well encountered dry

gas bearing Carboniferous reservoir formations. The section was cored and a well

test was carried out which flowed at a stabilised rate of 9 million standard cubic feetper day.

Project pipeline

Financial Overview

For the year ending December 2011 Ithaca produced net cash flows of US$103.5

million (2010 US$88.9 million), and profit before tax of US$37.1 million (2010

US$38.0 million).

Cash reserves were US$112.1 million (2010: US$201.9 million) and the company

had a UK tax allowance pool of US$325 million (2010 $289 million). On 21 March

2012 the UK Government increased the Small Field Allowance (SFA) tax shelter

availability from the 32% Supplemental tax charge for future small developments.


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The size of fields that qualify for full SFA was increased to include all fields with

reserves of under 45 mmboe. The tax allowance available to each field has been

doubled from approximately US$120 million to US$240 million. This change brings

the Stella field under the SFA tax shelter and doubles the relief expected for all other

developments including Harrier, Hurricane, Carna, Scolty Area (Scolty, Crathes and

Torphins) and South West Heather. In respect of the Greater Stella Area, this

amounts to in excess of US$80 million of additional tax-savings net to Ithaca over

the expected life of the fields.

Reserves

Net Proven and Probable reserves ("2P") increased approx. 9%, from

46.05 mmboe as at December 31, 2010 to 50.25 mmboe as at December 31, 2011.Net 1P Reserves 26.13 million barrels of oil equivalent ("mmboe") (2010:

22.30 mmboe).

The increase in reserves came mainly from the acquisitions of interests in the Cook

field and Challenger Minerals (North Sea) Ltd.

Ithaca's management has hedged well in recent years; entering into swap contracts

to sell 768,800 barrels of the Company's March 2012 - June 2013 forecastproduction at an average price of $116.07 per Barrel. The Company also entered

into put options, at a market price, for 390,000 barrels of oil at a weighted average oil

price floor of $120.24 / bbl for the period May 2012 - February 2013 during Q1 2012.

Company has locked in a portion of 2012/13 oil production (over 1.1 million barrels)

at a weighted average price of approx. US$118 per barrel, thereby securing

approximately US$136 million of revenue.

Significant developments in 2012

Takeover

In late January 2012 Ithaca issued an RNS stating that they had been approached

by an unnamed suitor with a view to a potential takeover. The shares rose quickly to

180p from an undisturbed level around 130p as the market priced in a takeover north

of 2 per share.

At the end of May 2012, management released a Corporate Update that included the


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blow to speculators of the stock that discussions had ceased with the initial suitor

who was intending to acquire the entire entity and also all the additional potential

bidders. The shares promptly fell to around 1.10, despite significant positive

corporate developments outside of the takeover. The wording of the RNS by

management was interesting:

'The Board has concluded that continuing the current process at this time was

unlikely to produce a transaction with financial terms that properly reflect the value of

the Company, particularly in light of the current volatility in

global markets and the short term softening in Brent crude prices. In reaching this

decision the Board of Directors has fully considered the Company's current value, its

growth potential, the future value that can be delivered to shareholders and the

responses of the third parties with whom discussions have been held.'

Our guess is that the market volatility and the softening in oil prices caused one or

two of the parties interest to wane and the 'competitive tension' that is all important in

a bid process was much diminished. Management likely were holding out for a full

price relative to recent deals in the region of 220p - 250p, and the remaining

party(ies) were playing hardball on price. With this in mind the bidders bluff was

called and Ithaca decided to plough their own furrow going forward.

Athena

In June 2012, Ithaca announced initial peak gross oil production rates from the

Athena field of 22,000 barrels of oil per day (4,950 bopd net to Ithaca) as metered

into the BW Athena's storage tanks following the production of first oil in late May

2012. At current oil prices, the project is anticipated to achieve payback within twelve

months. Final pressure testing on the subsea infrastructure is in the course of being

completed and first oil is expected in Q2 2012.

With this added production, total Ithaca production is around 9000 barrels per day.

4,299 barrels per day were produced in Q1 2012. When the Greater Stella area

comes on-stream in 2014 production is expected to increase to an average of 20,000

barrels per day.

Hurricane appraisal well

The Hurricane appraisal well is expected to spud by the end of June.


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Stella/Harrier field DECC approval

On April 12th 2012, Ithaca announced that the company had received Field

Development Plan approval for the Stella and Harrier Fields (located in the Central

North Sea) from the UK DECC (Department of Energy and Climate Change).

A contract for use of the Ensco 100 heavy duty jack-up rig on the development

drilling campaign to commence in H2 2012 was executed in November 2011.

Debt facility

The Company announced a threefold increase in its debt facility in May 2012 to $400

million plus US$30 million cost overrun tranche. The facility is available to fund theCompany's ongoing development activities and future acquisitions, and takes away a

lot of the financing uncertainty for development of their fields that presently hampers

valuations of other companies like Bowleven and Xcite Energy.

What makes Ithaca interesting to us?

1. Stable North sea production and exploration assets.

2. Over 50 million barrels P2 reserves over broad portfolio of assets.3. Strong financial position. It is Fully funded and has no debt, sitting with @

70m in cash at present.

4. Cash flow from operations is set to increase from approximately US$150

million in 2012 to approximately US$575 million in 2014 (assuming $100 a

barrel).

5. $400 million debt facility to buy new assets and pay for development of

existing fields.

6. Current market capitalization only 300 million.

7. Forward price/earnings of less than 3.

8. Good news flow - ramp up in Athena production, Hurricane appraisal well,

potential acquisitions.

At the current price (at time of writing - 115p), the company's EV:2P (EnterpriseValue:Proven & Probable reserves) equates to 4.40 per barrel against a BrentCrude price of over $100 (@ 70 per barrel at current FX rates).Corporate takeover/absorption deals in Ithaca's area of exploration have been struckin the 7-10 per barrel price range in recent years and so illustrates the presentundervaluation in the share price.

We also believe that the weakness in the share price has been exacerbated by the


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general market malaise; particularly in the Oil Explorers area of the market which isperceived as risky. The bid talks collapsing has also most likely squeezed out a lot ofleveraged money. Downside looks minimal here although it has to be said that thevaluation is not as cheap as the other North Sea play we are keen on - Xcite Energy.

Technical view

The 5 year chart below illustrates how Ithaca's share price is now sat at a keysupport level. One could argue that if 100p is broken decisively, that a very large Mtop that had taken 2 years to play out was complete and the next support is at 50p.What tempers this scenario is that the RSI is now somewhat oversold and thedeviation from the 19 week moving average is now excessive and at a point thattypically presages a bounce of some degree.

The alternate scenario, of course, is that the current price point will trace out a triplebottom around the 100p level and a rally back towards to 150p would represent a

50% retracement of the decline.

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