BUST TO BOOM - The Globe and Mail

Bill Newman, CFA 403.260.2460 [email protected]

A p ril 14 , 2016

BUST TO BOOM Buy These Stocks Before Oil Bounces Back Conclusion: The Inevitable Rebound In Oil Prices Should Give A Boost To PXT, GTE and IAE 

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Parex Resources Inc. (PXT – TSX) BUY; $13.50 Target o Current production of ~29,000 bbl/d with a mid-term target of 50,000 bbl/d o Large inventory of drilling locations in the Llanos basin to fuel its growth in the near term o Farm-in on Ecopetrol’s Aguas Blancas light oil field adds the potential for substantial reserves and production growth o We reiterate our BUY recommendation and we have increased our target price to $13.50 from $11.75 Gran Tierra Energy Inc. (GTE – TSX) BUY; $4.25 Target o Current production of ~25,000 boe/d (99%) oil o Near term strategy of focusing on its lower-risk, lower cost projects in Colombia, while farming out or monetizing its higher-risk exploration plays in Peru and Brazil o Balance sheet strength to facilitate the diversification of production and reserves through acquisition or farm-in o We reiterate our BUY recommendation and we have increased our target price to $4.25 from $3.60 Ithaca Energy Ltd. (IAE – TSX) BUY; $1.20 Target o Current production of ~9,000 boe/d (97%) oil expected to increase to ~25,000 boe/d (67%) in Q3/16. o Completion of the GSA production hub and start-up of the Stella field on track for Q3/16 o With the infrastructure in place the company can continue to grow through the tie-in of the company’s portfolio of satellite fields in the GSA. o We reiterate our BUY recommendation and we have increased our target price to $1.20 from $0.80

Three Oil Leveraged International Oil & Gas Companies Set To Rebound With The Oil Price Volatile oil prices ahead of OPEC meeting: In our last feature report (Oil Industry Report Jan 28, 2016), we recommended three international oil and gas companies that have limited exposure to weak oil prices that we expect to demonstrate substantial production and cash flow growth in 2016. In our current issue, we present a more bullish oil price investment scenario. It was a terrible start to the year with the Brent oil price sliding down 29% to a low of US$26.21/bbl on February 22, 2016. The price of oil rallied back on the news of a new OPEC meeting where Saudi Arabia, Russia and other OPEC countries are to consider setting a production freeze. The rally was short lived after Saudi Arabia stated that it would oppose a production freeze if Iran was exempt from the arrangement, but after the Kuwaiti oil minister recently stated there would be a deal, prices have bounced back again. We believe that a production freeze will have little impact on supply as most countries are already producing at near capacity. However, an agreement would signal that OPEC and other countries are motivated to move oil prices higher. In the event no deal is reached, we see the risk of oil prices falling off again. Lack of capital spending to rebalance the market: The oil bear market is now entering its 18 month, and with the massive cuts to capital spending last year that has continued into 2016, the market should eventually rebalance. We expect oil prices to remain volatile in the short term and eventually turn bullish as it becomes more apparent that oil declines are erasing the production surplus and the market is balancing. We expect oil prices will be supported by a period of catch up as the financial sector, spooked by the past false bull rallies, and mounting debt defaults are reluctant to jump in with both feet and to recapitalize the E&P sector. We also expect that with the decimation of the service sector, it will take time for the industry to rebuild and to respond to higher oil prices rebuild. This opens a window of opportunity for E&P companies that are leveraged to oil. In this scenario we recommend quality names with a high percentage of oil production that are highly correlated to oil prices. Parex Resources Inc. (“PXT”), Gran Tierra Energy Ltd. (“GTE”) and Ithaca Energy Inc. (“IAE”) have a high percentage of oil production and low cost structures and hedging strategies in place that should allow them to weather the storm in the short term. During the current low oil price environment, we expect these stocks to take advantage of acquisition opportunities, which could amplify the stock price returns once oil prices rebound.

This report has been created by analysts who are employed by Mackie Research Capital Corporation, a Canadian Investment Deale r. For further disclosures, please see last page of this report.

www.mackieresearch.com

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Increasing Target Prices With Our More Bullish Outlook For Oil Prices We believe PXT has one of the strongest management teams in Colombia and will continue to deliver consistent results for shareholders. We reiterate our BUY recommendation and have increased our target price to $13.50 (from $11.75). With the recent closing on US$100 million convertible notes, GTE has strengthened its balance sheet giving the company more flexibility to complete farm-ins and or acquisitions and diversify its production base. We reiterate our BUY recommendation and have increased our target price to $4.25 (from $3.60). Completion of the Floating Production Facility (FPF-1) is progressing and first production from the Stella field is on track for Q3/16. Once operational IAE can maintain production and reserves growth through the tie-in of its satellite fields in the Greater Stella Area. We reiterate our BUY recommendation and have increased our target price to $1.20 (from $0.80).

Figure 1: Target Price Changes

Target Price Company

Symbol

Parex Resources Inc.

Potential

New

Old

Price

PXT - TSX

$13.50

$11.75

$12.23

10.4%

Gran Tierra Energy Inc.

GTE - TSX

$4.25

$3.60

$3.43

23.9%

Ithaca Energy Inc.

IAE - TSX

$1.20

$0.80

$0.71

69.0%

Source: Mackie Research Capital

Following are 2-page summaries that highlight the investment merits of each name.

Return


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PAREX RESOURCES INC. – BUY PXT - TSX TARGET: PROJ. RETURN: VALUATION:

$12.23 $13.50 10.4% 0.95x NAVPS

Best In Class

(From $11.75)

Share Data Basic Shares O/S (mm): Fully Diluted O/S (mm): Market Cap ($mm): Enterprise Value ($mm): Net Debt (W.C.) ($mm): Next Reporting Date *As at Q4, 2015

151.5 158.5 1852.8 1750.7 (102.2) May 2016

Thomson Chart – 1 Year

OVERVIEW – Strong Management Team With a Track Record Of Value Creation Parex Resources Inc. (“PXT”) is focused on the exploration and development and production of crude oil in Colombia. The company was created in 2010 after PetroAndina Resources Inc. (“PetroAndina”) sold its Argentina assets to Plus Petrol and spun out its exploration assets into PXT. The entire management team, technical team, and directors of Petro Andina continued on with PXT. Over the past six years PXT has transformed from a pure exploration company, with no production and an interest in four blocks in the Llanos basin to a company with 23 blocks in three basins in Colombia and production of ~29,000 bbl/d. This growth has primarily been achieved though the exploitation of management’s exploration expertise.

RECENT EVENTS – Set Up For Big Growth With The Aguas Blancas Farm-in

Corporate Profile Parex Resources Inc. is focused on crude oil exploration, development and production in Colombia. The company holds an extensive, contiguous land position in the Llanos basin which supports the majority of its current production base. Going forward Parex plans to diversify its production base into the Middle Magdalena basin which offers more technically challenging but larger reserve potential. .

Upcoming Events - Q1/16 financial and operational results (May 2016)

Farm-in on Ecopetrol: On September 29, 2015, PXT announced an agreement with Ecopetrol to acquire a 50% W.I. in the Aguas Blancas light oil field located in the Middle Magdalena (“MM”) basin in Colombia. PXT will invest US$61 million in the initial earn in phase of development which includes a delineation/appraisal drilling program of 10 to 15 wells and waterflood pilot project. The Aguas Blancas field is just south of the enormous La Circa-Infantas oil field which reached a peak production rate of 65,000 bbl/d and has produced ~850 mmbbls of oil to date. With limited well control, independent engineering company GLJ assigned only 3.3 million bbls of net proven plus probable (“2P”) reserves to the Agua Blancas field. Based upon recently shot 3D seismic, management believes the Aguas Blancas field could be ~4,300 acres in aerial extent with an additional 1,500 acres from a satellite structure. If true, then full field development would require hundreds of wells resulting in substantial reserve and production additions. We note that management was highly successful in the implementation of large scale appraisal and developments drilling program as well as water flood secondary recovery projects in Argentina, while at PetroAndina, the predecessor company to PXT. Strong balance sheet: As at December 31, 2016, PXT had ~US$76 million of net positive working capital, no debt and access to a $200 million credit facility giving the company financial flexibility to capture new opportunities. Expanding presences in the Middle Mag Basin: PXT’s current production base is from the Llanos basin which is characterized by high quality, highly prolific conventional sandstone reservoirs. Although, the company has a dominant land position in the Llanos basin and a multiyear exploration and development drilling inventory, PXT sees the Middle Magdalena basin as the next big growth opportunity. In contrast to the Llanos basin, the MM basin is more complex, with thick sequence of interbedded sand and shale reservoirs. As a result of this complexity, only the obvious structural traps have been drilled with most fields discovered before the 1980s. This presents the opportunity to PXT to exploit its expertise in the application of modern North American technology to unlock the large, multi-hundred million barrel plays in the MM. Ecopetrol who is partnered with PXT in the development of the Aguas Blancas block is also one of the largest land holders in the MM basin. If the Aguas Blancas JV proves successful, this may lead to similar contracts with Ecopetrol providing additional opportunities for growth in the mid to longer term.

SUMMARY– Premium Price But You Pay For What You Get PXT has a large drilling inventory of development and exploration locations in the Llanos basin which should continue to fuel its growth in the near term and substantial growth potential in the mid to long term from the Aguas Blancas farm-in agreement. Although Parex trades at a significant premium to our core value estimate of $9.31/fd share, we believe that the premium is warranted due to management’s substantial technical experience and track record of shareholder wealth creation. We maintain our BUY recommendation and have increased our target price to $13.50 from $11.75 equivalent to a 1.1x multiple (up from 0.95x) of our risked NAV.


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Figure 2: Detailed Summary and Forecast

Parex Resources Inc.

PXT

Share Data n Basic Shares (mm): 151.5 r Diluted Shares (mm): 158.5 Fully Diluted (mm): 158.5 Production Oil & Liquids bbl/d Natural Gas mmcf/d Boe/d 6:1 Production Grow th % Cash Flow & Earnings (US$) Cash Flow US$ m m Cash Flow /Share US$/share Cash Flow /FD Share US$/share CF Per Share Grow th % $/Barrel of Oil Equivalent (US$) Revenue (sales) US$/boe Operating Cost US$/boe Transporation Costs US$/boe G&A US$/boe Cash Flow Netback US$/boe Valuation Metrics (C$) FD Cash-Flow Multiple EV/DACF Multiple EV/Production C$/mboe/d EV/boe Reserves C$/boe Com m odity Price Brent US$/bbl Corporate Oil & Liquids C$/bbl Capex and Capital Structure Capex US$ mm Capex/Cash Flow % Weighted Average Basic mm Dilutive mm Market Cap C$ mm Enterprise Value C$ mm Net Debt (W.C.) C$ mm Net Debt/Cash Flow

Market Value Market Cap. (mm): $1,852.8 Enterprise Value (mm): $1,750.7 Net Debt (W.C.) (mm): ($102.2) 2013A 2014A 2015A 15,854 22,526 27,435 15,854 22,526 27,435 39% 42% 22% 2013A 2014A 2015A 271.7 293.9 130.3 $2.51 $2.44 $0.90 $2.20 $2.40 $0.90 4% 9% (63%) 2013A 2014A 2015A 104.20 87.60 46.59 9.95 11.15 7.26 18.09 17.41 13.84 5.25 3.96 3.68 46.94 35.74 13.01 2013A 2014A 2015A 5.3x 4.6x 10.7x 4.6x 4.7x 10.1x 110.4 77.7 63.8 54.67 25.59 21.43 2013A 2014A 2015A 81.22 99.54 53.66 76.92 87.60 46.59 2013A 233.9 86% 108.4 123.5 1,327.2 1,378.7 51.4 0.2x

2014A 296.8 101% 120.4 122.4 1,342.6 1,377.7 35.1 0.1x

2015A 125.5 96% 145.0 145.5 1,648.3 1,551.2 (97.1) na

Stock Price Close: $12.23 High: $12.24 Low : $7.16 Q1/16E Q2/16E 28,750 29,000 28,750 29,000 1% 1% Q1/16E Q2/16E 23.4 28.8 $0.15 $0.19 $0.15 $0.19 (30%) 19% Q1/16E Q2/16E 29.03 29.50 6.00 6.25 15.35 12.50 2.79 2.77 8.96 10.92 Q1/16E Q2/16E 14.4x 12.4x 13.4x 11.5x 60.9 60.4

Target Price Target: $13.50 Return: 10.4% Risked NAV: 0.95x Q3/16E Q4/16E 2016E 29,500 32,500 29,947 29,500 32,500 29,947 2% 10% 9% Q3/16E Q4/16E 2016E 22.6 14.7 89.5 $0.15 $0.10 $0.59 $0.15 $0.10 $0.59 (28%) (54%) (34%) Q3/16E Q4/16E 2016E 35.75 38.75 33.47 6.75 6.75 6.45 12.50 12.75 13.00 2.69 2.44 2.66 8.32 4.91 8.17 Q3/16E Q4/16E 2016E 15.8x 24.3x 16.0x 14.5x 22.5x 14.8x 59.3 53.9 58.5

Q1/16E 35.21 28.71

Q2/16E 36.00 29.50

Q3/16E 42.25 35.75

Q4/16E 45.25 38.75

2016E 39.68 33.18

Q1/16E 5.0 21% 151.5 151.8 1,835.8 1,710.8 (125.1) na

Q2/16E 15.0 52% 151.5 151.8 1,837.0 1,700.6 (136.5) na

Q3/16E 15.0 66% 151.5 151.8 1,852.7 1,706.4 (146.3) na

Q4/16E 25.0 170% 151.5 151.8 1,852.7 1,719.8 (132.9) na

2016E 60.0 67% 151.5 151.8 1,852.7 1,719.8 (132.9) na

NAV, Reserves and Concessions Net Asset Value Estim ate Reserves (P + P)* Working Capital (Net Debt) Net Asset Value Basic Dilution Core NAV/FD Share Price/Core NAV Risked Exploration (C$) Risked NAV/FD share Price/Risked NAV

C$mm 1,325.4 (102.2) 1,427.5 48.2 1,475.8 482.1 1,957.8

C$/share $8.75 ($0.67) $9.42 $9.31 1.31x $3.04 $12.35 0.99x

Source: Company reports, Mackie Research Capital

Reserve Estim ate (December 31, 2015) Concession Acres (mboe) Gross Net Proven 56% 46,006 Colombia 2,625,620 2,220,401 Probable 44% 35,673 P+P 81,679 Reserve Life Index Production 2015 2016 Proven 4.59 4.21 P+P 8.16 7.47


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GRAN TIERRA ENERGY INC. – BUY GTE - TSX $3.43 TARGET: (From $3.60) $4.25 PROJ. RETURN: 24% VALUATION: 0.95x NAVPS Share Data Basic Shares O/S (mm): Fully Diluted O/S (mm): Market Cap ($mm): Enterprise Value ($mm): Net Debt (W.C.) ($mm)*: Next Reporting Date

296.2 339.3 1,016.0 895.1 (120.9) May 2016

*Estimated as at April 1, 2016


Diversification Through Acquisition OVERVIEW – Low Decline Production Base And Capital For Rapid Expansion Gran Tierra Energy Inc. (“GTE”) is primarily focused on exploration and production of oil and gas in Colombia. The company holds a large land position in Colombia, with an interest in 29 blocks covering a combined area of 5.76 million acres (3.7 million net acres). GTE also holds non-core assets located in Peru and Brazil, which management plans to farmout/sell or potential spinout into a new exploration company. In May 2015, the company reorganized with the appointment of a new management team and board of directors composed primarily of individuals that previously managed Caracol Energy Inc., a successful international oil and gas company that was acquired in 2014 for US$1.4 billion. The new management team, led by Gary Guidry (President & CEO) has implemented a strategy of focusing on its lower-risk, lower cost projects in Colombia, while farming out or monetizing its higher-risk exploration plays in Peru and Brazil. Additionally, GTE plans to continue to leverage its balance sheet strength and expand into other basins within Colombia in order to help diversify its production base.

RECENT EVENTS – Closing of US$100 Million Of Senior Convertible Notes

Corporate Profile Gran Tierra Energy Inc. is an international oil and gas company currently focused on the development of its onshore oil and gas assets located Colombia. The company also holds exploration assets in Peru, and producing and exploration assets in Brazil.

Upcoming Events - Q1/16 financial and operating results (May 2016)

Strong Balance Sheet With Total Liquidity of US$393 million: After the completion of the Petroamerica Oil Corp. (“PTA”) acquisition, which closed on January 13, 2016, and the PetroGranada Colombia Limited (“PGC”) acquisition which closed on January 25, 2016, GTE had estimated net positive working capital of US$97 million. On April 6 th, 2016, GTE completed an offering of US$100 million convertible senior notes. Subsequent to the financing, estimated working capital increased to US$192 million. GTE also has an undrawn credit facility of US$200 million, taking total corporate liquidity to US$392 million. This balance sheet strength should allow GTE to continue to diversify its asset base by taking advantage of acquisition or farm-in opportunities in this buyer’s market. Base capex of US$107 million plus US$61 million of discretionary spending: GTE has budgeted US$107 million in spending this year with the majority focused on low -risk development operations on the Costayaco and Moqueta fields on the Chaza block (100% W.I.). Additionally, GTE will drill two exploration wells and one development well on the PUT-7 block (100% W.I.) targeting the emerging Villeta N sand play. In the event oil price recover to over the US$45/bbl, GTE has an additional discretionary budget of US$61 million primarily directed to drilling in the Putumayo and Llanos basin s. The base case budget assumes an average 2016 production rate of 27,500 to 29,000 boe/d net before royalties (“NBR”), with an exit rate of between 29,000 and 30,000 boe/d NBR.

SUMMARY: Solid Production Base Expected To Be Diversified Through Deals GTE has a dominate land position in the Putumayo basin, where Costayaco and Moqueta fields make up the majority of the company’s production and reserves. Both fields have low decline production but are expected to be fully developed in 2016. GTE has substantial exploration resource potential on these lands and plans to focus on the under-explored Villeta N Sand play which has the potential for large reserve additions. In 2016, we expect GTE to take advantage of its new development and exploration opportunities associated with the PTA and PGC acquisitions. We also believe that GTE is likely to expand its drilling program above the base case capital budget. Additionally, GTE has the balance sheet strength to continue to diversify its asset base through acquisitions and/or farm-ins. In doing so, the company is targeting to grow its NAV/sh by 3 to 5 times within 5 years. We are increasing our target price to $4.25 from $3.60 equivalent to a 0.95x multiple (up from 0.80x) of our risked NAV/fd share.


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Gran Tierra Energy Inc. Share Data Basic Shares (mm): Diluted Shares (mm): Fully Diluted (mm):

GTE

296.2 296.2 339.3

Production (Sales NAR*) Oil & Liquids Natural Gas Boe/d

bbl/d mmcf/d 6:1

Production Grow th

%

Market Value Market Cap. ($ mm): $ 1,016.0 Enterprise Value ($ mm): $ 895.1 Net Debt (W.C) ($ mm): $ (120.9)

Stock Price Close: $3.43 High: $4.80 Low : $2.48

Target Price Target: $4.25 Return: 23.9% Risked NAV: 0.95x

2012A 16,214 4.1 16,897

2013A 18,589 3.9 19,239

2014A 18,373 0.9 18,523

2015A 18,115 0.9 18,260

Q1/16E 22,700 0.9 22,850

Q2/16E 23,300 0.9 23,450

Q3/16E 23,750 0.9 23,900

Q4/16E 24,200 0.9 24,350

2016E 23,490 0.9 23,640

(3%)

11%

-4%

-2%

34%

3%

2%

2%

22%

2013A 348.0 $1.22

2014A 319.6 $1.12

2015A 108.3 $0.38

Q1/16E 11.9 $0.04

Q2/16E 12.1 $0.04

Q3/16E 26.6 $0.09

Q4/16E 34.1 $0.11

2016E 84.7 $0.29

7%

(8%)

(66%)

(55%)

(52%)

(30%)

53%

(25%)

*Net After Royalties After Inventory Adjustments Cash Flow & Earnings (US$) Cash Flow $ mm Cash Flow /FD Share $/share CF Per Share Grow th

%

Earnings/FD Share

$/share

2012A 323.8 $1.14 1% $0.35

$0.44

($0.60)

($0.94)

($0.17)

($0.18)

($0.15)

($0.13)

($0.62)

$/Barrel of Oil Equivalent (US$) Revenue $/boe

2012A 94.55

2013A 102.60

2014A 82.74

2015A 41.41

Q1/16E 29.31

Q2/16E 29.77

Q3/16E 35.98

Q4/16E 38.96

2016E 33.63

Operating Costs

$/boe

19.60

18.95

18.18

18.62

17.00

17.00

17.00

17.00

17.00

G&A

$/boe/d

7.34

6.43

7.20

4.54

3.13

3.05

2.96

2.90

3.00

Cash Flow Netback

$/boe

52.49

49.55

47.28

16.25

5.80

5.68

12.10

15.21

9.82

Valuation Metrics (C$) FD Cash Flow Multiple EV/DACF Multiple EV/Production EV/boe reserves

C$/mboe/d C$/boe

2012A 3.0x 2.3x 53.0 15.9

2013A 2.7x 2.0x 46.5 8.4

2014A 2.8x 2.0x 48.3 17.5

2015A 7.1x 5.6x 49.0 11.7

Q1/16E 15.6x 20.0x 39.2

Q2/16E 16.2x 17.1x 38.2

Q3/16E 7.4x 8.3x 37.5

Q4/16E 5.8x 6.5x 36.8

2016E 9.3x 8.1x 37.9

Com m odity Price Brent

US$/bbl

2012A 112.94

2013A 108.74

2014A 99.47

2015A 53.62

Q1/16E 35.21

Q2/16E 36.00

Q3/16E 42.25

Q4/16E 45.25

2016E 39.50

Corporate Oil & Liquids

US$/bbl

102.50

92.19

82.48

41.23

28.84

29.63

35.84

38.83

33.10

Corporate Natural Gas

C$/mcf

0.42

2.35

4.52

3.80

3.75

3.75

3.75

3.75

3.75

Exchange Rate

US$ per C$

1.00

0.97

0.91

0.78

0.73

0.77

0.77

0.77

0.77

2012A 312

2013A 367

2014A 416

2015A 159

Q1/16E 30

Q2/16E 30

Q3/16E 25

Q4/16E 22

2016E 107

Capex and Capital Structure Capex US$ mm Capex/Cash Flow

%

96%

106%

130%

147%

252%

247%

94%

65%

126%

Weighted Average Basic

mm

281

283

285

285

297

297

297

297

297

Dilutive Shares Market Cap Enterprise Value Net Debt (WC) Net Debt/Cash Flow

mm C$ mm C$ mm C$ mm C$ mm

284 988 764 (224) na

286 978 730 (248) na

285 979 710 (269) na

285 967 762 (205) na

297 1,019 912 (108) na

297 1,019 941 (79) na

297 1,019 939 (81) na

297 1,019 923 (96) na

297 1,019 923 (96) na

NAV, Reserves and Concessions Net Asset Value Reserves (P + P)* Working Capital (Net of Debt) Other Assets Net Asset Value (Basic) Dilution Core NAV/FD Share Price to core NAV Risked Exploration (C$) Risked NAV/FD share Price to risked NAV (multiple)

C$mm C$/share 1,106 $4.15 121 $0.41 1,350 $4.14 $0.00 1,227 $4.14 0.83x 106 $0.36 1,333 $4.50 0.76x


Reserve Estim ate (12/31/2015)* (mboe) Proven 70% 53,031 Probable 30% 23,198 P+P 76,229

Proven P+P

Concessions (000's of acres) Gross Net Brazil 48 48 Colombia 5,706 3,715 Peru 5,732 5,732 11,486 9,495

Reserve Life Index Production 2015 2016 8.0 6.1 11.4 8.8

*Net before royalty, Including PTA and PetroGranada acquistions


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ITHACA ENERGY INC. – BUY IAE - TSX $0.71 TARGET: (From $0.80) $1.20 PROJ. RETURN: 69% VALUATION: 0.75x NAVPS Share Data Basic Shares O/S (mm)*: Fully Diluted O/S (mm)*: Market Cap ($mm): Enterprise Value ($mm): Net Debt (W.C.) ($mm)*: Next Reporting Date:

411.4 430.6 292.1 1047.1 755.0 May

*As at: Dec 31, 2015


Corporate Profile Ithaca Energy Inc. is focused on the appraisal and development of its large inventory of undeveloped discoveries located in the UK North Sea. The company current focus is the construction of a production hub in the Greater Stella Area expected to be operations in Q3/16 which should see production increase to over 25,000 boe/d..

Upcoming Events - Vorlich Field Development Plan approval (Q4/16). - FPF-1 sale away (Mid May to Late June) - Stella first production (Q3/16) - RBL redetermination (April 30, 2016).

Stella Production Hub Sets Up Long Term Growth OVERVIEW – UK North Sea Producer On Track To Complete GSA Hub In Q3/16 Ithaca Energy Inc. (“IAE”) is focused on lower risk growth through the appraisal and development of its large inventory of undeveloped discoveries located in the UK North Sea. The company’s current focus is the construction of a production hub in the Greater Stella Area which is expected to be operational in Q3/16. Once complete, corporate production is expected to increase to ~25,000 boe/d (67% oil) from ~9,000 boe/d (97% oil) currently. In the mid to long term the company plans to continue its growth through lower capital, lower risk projects including the tie-in of its satellite fields in the Greater Stella Area. Also, IAE expects to continue to take advantage of acquisition opportunities which continue to arise in low oil price environments.

RECENT EVENTS – FPF-1 Commissioning Operations Nearing Completion Stella On Track For Q3/16: IAE holds a 54.66% interest in the Greater Stella Area (“GSA”) which includes the Stella field and other satellite discoveries and prospects. IAE is partnered with Dyas UK Limited which holds a 25.34% interest and Petrofac with the remaining 20% interest. Although the Stella project has experienced delays, the field is now nearing first production. The five Stella wells have been drilled, tested and are ready to produce, all the subsea infrastructure is in place and the commissioning operations on the Floating Production Facility (“FPF-1”) are nearing completion. Sail-away of the FPF-1 remains on track for mid-May to late June with first production from the Stella field commencing ~3 months later. Production is expected to ramp up qui ckly adding ~16,000 boe/d of initial annual production net to IAE taking total corporate production to over 25,000 boe/d. Building a GSA Satellite Portfolio: On January 12, 2016, IAE announced an agreement to acquire an approximate 17% interest in the Vorlich discovery, which is located 9 km from GSA hub. The Vorlich field will likely be tied into IAE’s GSA production hub, which could generate additional tariff revenues for the company. Vorlich is likely the first of several low cost acquisitions that IAE will complete in the GSA area. Falling Operating Costs: Through a portfolio restructuring process, IAE removed the higher costs, marginal producing fields including Beatrice, Athena and Anglia, and relinquished the non-core, non-producing sub economic licences. As a result unit operating costs dropped to US$31/boe in 2015 from US$55/boe in 2014. With Stella operating costs expected in the US$12-US$15/boe range, total corporate operating costs are expected to fall to an average of US$25/boe in 2016 and US$20/boe in 2017. With no royalties, moderate operating costs and large tax pools that defer the payment of cash taxes, IAE is well positioned to operate in a low commodity price environment. Additionally IAE has an average of 10,000 boe/d hedged until mid-2017 at a price of $61/boe, which provides additional price protection. Deleveraging Expected To Continue: Net debt which reached a peak level of ~US$800 million in 2015 is expected to fall to ~US$635 million by the end of Q1/16. IAE’s current debt capacity is US$815 million, consisting of a US$515 million reserve based lending (“RBL”) facilities and US$300 million of senior unsecured notes. The next RBL review is April 30, 2016. Although oil prices have fallen since the last review 6 m onths ago, it is expected that IAE will not be materially impacted by any potential changes to the RBL .

SUMMARY: Step Growth In Production & Cash Flow With Stella Start-up IAE’s production is set to increase by ~16,000 boe/d upon the completion of the GSA production hub and start-up of the Stella field. This will conclude a significant investment stage for the company. With the infrastructure in place the company can continue to grow through the much less capital intensive tie-in of the company’s portfolio of satellite fields. The production hub also provides IAE with competitive advantage when competing for other blocks in the area.


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Ithaca Energy Inc.

IAE

Shares Basic Shares (mm): Diluted Shares (mm): Fully Diluted (mm):

411.4 411.4 430.6

Production Oil & Liquids Natural Gas Boe/d

bbl/d mmcf/d 6:1

Production Grow th

%

Cash Flow

Market Value Market Cap ($mm): $292 Enterprise Value ($mm): $1,047 Net Debt (W.C.) ($mm): $755 2012A 5,195 4.0 5,862

2013A 9,829 3.4 10,392

2014A 10,351 3.6 10,947 5%

2015A 11,403 4.0 12,066

Stock Close: High C$: Low C$: Q1/16E 8,750 1.5 9,000

Price $0.71 $1.11 $0.33 Q2/16E 8,900 1.5 9,150

Target Target C$: Return: Risked NAV: Q3/16E 10,850 18.3 13,900

Q4/16E 16,750 49.5 25,000

$1.20 69.0% 0.75 2016E 11,333 17.8 14,305

34%

77%

10%

(28%)

(28%)

17%

123%

19%

2012A

2013A

2014A

2015A

Q1/16E

Q2/16E

Q3/16E

Q4/16E

2016E

Cash Flow

US$m m

90.3

244.1

153.2

240.0

16.2

17.3

18.8

35.7

87.9

Cash Flow /FD Share

$/share

$0.34

$0.79

$0.46

$0.69

$0.04

$0.04

$0.05

$0.09

$0.21

CF Per Share Grow th

%

50%

132%

(41%)

50%

(85%)

(73%)

(73%)

(23%)

(69%)

2012A 102.43 39.95 2.02 42.21 2012A 2.1x 1.8x 179 13.85

2013A 109.13 39.49 2.66 64.35 2013A 0.9x 2.8x 101 18.05

2014A 94.75 55.26 2.99 32.83 2014A 1.5x 6.8x 96 14.85

2015A 87.41 24.17 2.22 48.79 2015A 0.8x 3.1x 87 14.85

Q1/16E 66.48 7.48 0.85 12.55 Q1/16E 3.3x 11.7x 116

Q2/16E 67.21 7.48 0.84 13.54 Q2/16E 3.3x 11.2x 114

Q3/16E 51.50 7.56 0.55 10.00 Q3/16E 3.0x 10.1x 75

Q4/16E 44.29 6.30 0.31 12.90 Q4/16E 1.6x 5.2x 42

2016E 53.12 27.85 2.15 12.24 2016E 2.6x 8.4x 73

2012A

2013A

2014A

2015A

Q1/16E

Q2/16E

Q3/16E

Q4/16E

2016E

US$/Barrel of Oil Equivalent Revenue $/boe Operating Costs $/boe G&A $/boe Cash Flow Netback $/boe Valuation Metrics FD Cash-Flow Multiple EV/DACF Multiple EV/Production $/mboe/d EV/boe Reserves $/boe Com m odity Price Brent Reference Price

US$/bbl

112.00

107.49

99.54

53.62

35.21

36.00

42.25

45.25

39.50

Corporate Oil & Liquids Corporate Natural Gas

US$/bbl US$/mcf

112.76 6.31

108.85 7.00

97.00 5.47

54.00 3.43

33.69 3.25

34.48 2.75

40.73 2.70

43.73 4.25

38.00 3.24 2016E

2014A

2015A

Q1/16E

Q2/16E

Q3/16E

Q4/16E

Capex

Capital Structure $mm

2012A 176.8

1,060.1

370.0

117.0

12.0

18.0

10.0

10.0

50.0

Capex/Cash Flow

%

196%

434%

242%

49%

74%

104%

53%

28%

57%

Weighted Average Basic

mm

258.9

301.5

326.9

327.7

327.9

327.8

327.7

327.8

327.8

Dilutive

mm

264.8

307.9

330.0

345.6

415.0

415.0

415.0

415.0

415.0

188.0 164.2 (23.8) na

219.2 704.5 485.3 1.9x

234.3 1,156.5 922.1 4.9x

234.3 937.0 702.7 1.8x

234.3 982.6 748.4 6.1x

234.3 944.3 710.0 6.1x

234.3 932.9 698.6 5.5x

234.3 899.5 665.3 2.8x

234.3 899.5 665.3 4.5x

Market Cap C$mm Enterprise Value C$mm Year-End Net Debt (W.C.) C$mm Net Debt/Cash Flow NAV, Reserves and Concessions

2013A

Net Asset Value Reserves (P + P) Net Debt (W.C.) Other Assets/Liabilities Net Asset Value (Basic) Dilution Core NAV/FD Share Price to Core NAV Risked Exploration Risked NAV/FD Share Price to Risked NAV

C$mm C$/share 1,423.4 $3.46 755.0 $1.84 $0.00 668.4 $1.62 $0.00 668.4 $1.62 0.44x $0.00 668.4 $1.62 0.44x

Reserve Estim ate (12/31/15)* (mmboe) Proven 28.1 Proven + Prob. 57.0 *Includes Vorlich acquistion Reserve Life Index (years) Production 2015 2016 Proven 6.4 5.4 Proven + Prob. 12.9 10.9

Reserves by Core Area (mmboe) Greater Stella Area 30.8 Dons Area 6.2 Wytch Farm 5.3 Pierce 3.4 Cook 5.7 Causew ay/Fionn 1.6 Topaz 0.1 Broom 0.2 Vorlich 3.8 0.0 57.0



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