Energy SpA — Interim / Quarterly Report 2015

Aug 25, 2015

Iona Energy Inc. Condensed Consolidated Financial Statements - Unaudited For the three and six month periods ended June 30, 2015

Contents

	2
Condensed Consolidated Statements of Profit or Loss
and Comprehensive Loss	3
Condensed Consolidated Statements of Change
Equity	4
	5
	6 –24
Corporate Information	25
	Condensed Consolidated Statements of Financial Position in Shareholders' Condensed Consolidated Statements of Cash Flows Notes to the Condensed Consolidated Financial Statements

Iona Energy Inc. Condensed Consolidated Statements of Financial Position - Unaudited

(In thousands of US dollars)	Notes	June 30, 2015	December 31, 2014
ASSETS
Current Assets
Cash and cash equivalents		10,275	31,565
Accounts receivable		8,853	6,643
Prepaid expenses		6,201	3,467
Restricted cash	6	55,087	55,478
Inventory	7	2,328	943
Derivative instruments	9	2,533	7,817
Total Current Assets		85,277	105,913
Restricted cash	6	8,675	8,612
Deferred tax asset	8	25,072	54,200
Exploration and evaluation assets	10	41,396	40,934
Property and equipment	11	226,549	250,499
Total Non-Current Assets		301,692	354,245
Total Assets		386,969	460,158
LIABILITITES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities		12,140	32,243
Total Current Liabilities		12,140	32,243
Non-Current Liabilities
Senior debt instrument	12	289,288	267,493
Decommissioning provision	13	33,471	36,158
Provision for contingent payments	14	27,928	27,743
Derivative liabilities	9	8,711	21,020
Total Non-Current Liabilities		359,398	352,414
Total Liabilities		371,538	384,657
Shareholders' Equity
Share capital	15	178,717	178,717
Share warrants	16	986	-
Contributed surplus		11,415	11,351
Accumulated other comprehensive loss		(7,848)	(7,850)
Retained (deficit)		(167,839)	(106,717)
Total Shareholders' Equity		15,431	75,501
Total Liabilities and Shareholders' Equity		386,969	460,158

Iona Energy Inc. Condensed Consolidated Statements of Profit or Loss and Comprehensive Loss - Unaudited

(In thousands of US dollars, except for per share and share amounts)			Three Months Ended June 30			Six Months Ended June 30
	Notes		2015	2014		2015	2014
Revenue Operating costs Depletion, depreciation and amortization Gross (Loss) / Profit	3		16,336 (5,928) (13,378) (2,970)	27,100 (11,103) (16,670) (673)		24,425 (13,491) (19,431) (8,497)	62,748 (17,611) (35,598) 9,539
Expenses General and administrative expenses Pre-license costs Impairment of oil and gas properties Transaction costs Total Expenses	10 11		(3,700) - (13,398) (72) (17,170)	(3,214) (84) - (2,519) (5,817)		(5,968) - (13,398) (72) (19,438)	(4,560) (283) - (3,152) (7,995)
(Loss) / Profit before other expenses			(20,140)	(6,490)		(27,935)	1,544
(Loss) / gain on derivative instruments Finance costs Finance income	9		(481) (8,001) 2	(8,762) (8,284) 4		12,267 (16,008) 5	(8,474) (16,072) 6
Foreign exchange loss Net Loss before tax			(316) (28,936)	(533) (24,065)		(323) (31,994)	(352) (23,348)
Income tax Net Loss for the Period			(18,637) (47,573)	(3,962) (28,027)		(29,128) (61,122)	(5,017) (28,365)
Other comprehensive income Other comprehensive income to be reclassified to profit or loss in subsequent periods (net of tax): Unrealized foreign exchange (loss) / gain on net investments Exchange gain / (loss) on retranslation of foreign operations			(2,179) 2,210	(5,347) 5,001		10,085 (10,083)	172 (573)
Net other comprehensive loss to be reclassified to profit or loss in subsequent periods			31	(346)		2	(401)
Total Comprehensive Loss for the Period			(47,542)	(28,373)		(61,220)	(28,766)
Net loss per share - basic - diluted		\$ \$	(0.13) (0.13)	(0.08) (0.08)	\$ \$	(0.16) (0.16)	(0.08) (0.08)
Weighted average shares outstanding - basic - diluted			370,580,868 370,580,868	366,830,868 366,830,868		370,580,868 370,580,868	366,830,868 366,830,868

Iona Energy Inc. Condensed Consolidated Statements of Changes in Shareholders' Equity - Unaudited

					Accumulated Other
(In thousands of US dollars)	Notes	Share Capital	Share Warrants	Contributed Surplus	Comprehensive Loss	Retained (Deficit)	Total Equity
Balance December 31, 2014		178,717	-	11,351	(7,850)	(106,717)	75,501
Net loss for the period		-	-	-	-	(61,122)	(61,122)
Share based payments	15(b)	-	-	64	-	-	64
Share warrants issued	16	-	986	-	-	-	986
Other comprehensive income to be reclassified to profit or loss in subsequent periods (net of tax): Exchange differences (loss) on re
translation of foreign operations Unrealized foreign exchange on net		-	-	-	(10,083)	-	(10,083)
investments		-	-	-	10,085	-	10,085
Net other comprehensive loss to be reclassified to profit or loss in subsequent periods		-	-	-	2	-	2
Balance June 30, 2015		178,717	986	11,415	(7,848)	(167,839)	15,431

					Accumulated Other	Retained
(In thousands of US dollars)	Notes	Share Capital	Share Warrants	Contributed Surplus	Comprehensive Income / (Loss)	Earnings / (Deficit)	Total Equity
Balance December 31, 2013		177,359	-	10,151	(8,055)	12,733	192,188
Net loss for the period		-	-	-	-	(28,365)	(28,365)
Share based payments	15(b)	-	-	119	-	-	119
Share warrants issued	16	-	-	-	-	-	-
Other comprehensive income to be reclassified to profit or loss in subsequent periods (net of tax):
Exchange differences (loss) on re translation of foreign operations		-	-	-	(573)	-	(573)
Unrealized foreign exchange on net investments		-	-	-	172	-	172
Net other comprehensive loss to be reclassified to profit or loss in subsequent periods		-	-	-	(401)	-	(401)
Balance June 30, 2014		177,359	-	10,270	(8,456)	(15,632)	163,541

Iona Energy Inc. Condensed Consolidated Statements of Cash Flows - Unaudited

		Six Months	Six Months
		Ended	Ended
(In thousands of US dollars)	Notes	June 30 2015	June 30 2014
Cash flows (used in) / from operating activities
Net loss for the period		(61,122)	(28,365)
Items not involving cash:
Depletion, depreciation and amortization		19,526	35,623
Unrealized foreign exchange gain		48	(577)
Unrealized gain on fair value of derivative instruments		(7,025)	2,544
Income tax expense	5	29,128	5,017
Impairment of oil and gas properties	11	13,398	-
Share based payments	15(b)	64	119
Finance costs		16,008 10,025	16,072 30,433
Changes in non-cash working capital balances:
Accounts receivable		(2,210)	(5,185)
Prepaid expenses		(1,766)	(593)
Inventory		(1,385)	561
Accounts payable and accrued liabilities		(10,505)	1,885
Cash flow (used in) / generated from operating
activities		(5,841)	27,101
Cash flows (used in) financing activities
Bank fees and other interest charges		(266)	(323)
Interest on bond		-	(13,063)
Cash flow (used in) financing activities		(266)	(13,386)
Cash flows (used in) investing activities
Expenditures on property and equipment Expenditures on exploration and evaluation	11 10	(15,004) (462)	(1,805) (1,803)
Decrease in restricted cash		329	2,725
Cash flow (used in) investing activities		(15,137)	(883)
Effect of exchange rate changes on cash		(46)	179
(Decrease) / increase in cash and cash equivalents		(21,290)	13,011
Cash and cash equivalents, beginning of period		31,565	19,808
Cash and cash equivalents, end of period		10,275	32,819

Iona Energy Inc. Notes to the Condensed Consolidated Financial Statements For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

1. Corporate Information

Iona Energy Inc. ("Iona" or "the Company") is a publicly traded junior oil and gas company on the TSX Venture Exchange ("TSX-V") under the symbol INA engaged in the evaluation, acquisition, exploration and development of oil and gas properties in the United Kingdom's North Sea and in Alaska.

The registered office of the Company is located at 1600, 333-7th Avenue S.W., Calgary, Alberta, T2P 2Z1.

The following sets out the subsidiaries of the Company and the Company's ownership interest in those subsidiaries:

Jurisdiction of Incorporation	Ownership
Delaware, USA	100%
United Kingdom	100%
United Kingdom	100%
United Kingdom	100%

2. Basis of Presentation

Statement of compliance

These condensed consolidated financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting" ("IAS 34"), as issued by the International Accounting Standards Board ("IASB"). Accordingly, certain information or footnote disclosure normally included in the annual consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the IASB, have been condensed or omitted.

These condensed consolidated financial statements were approved and authorized for issuance by the Board of Directors on August 25, 2015.

Basis of preparation

Except as noted below, the condensed consolidated financial statements have been prepared using the same accounting policies and methods, including significant judgments and estimates as those disclosed in the consolidated financial statements for the year ended December 31, 2014. These condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements for the year ended December 31, 2014. In addition to the accounting policies disclosed in the consolidated financial statements for the year ended December 31, 2014, the Company has adopted the following accounting policy for the period ended June 30, 2015:

Borrowing costs

Borrowing costs directly relating to the construction or production of a qualifying capital project under construction are capitalized and added to the project cost during construction until such time as the assets are substantially ready for their intended use, i.e. when they are capable of commercial production. Where the funds used to finance a project form part of general borrowings, the amount capitalized is calculated using a weighted average of rates applicable to relevant general borrowings of the group during the period. All other borrowing costs are recognized in the income statement in the period in which they are incurred.

Going Concern

Huntington, the key producing asset of Iona UK Huntington Limited, a wholly owned subsidiary of the Company, suffered numerous production interruptions during 2014 and early 2015, largely linked to the availability of the CATS gas offtake system. These interruptions, coupled with the recent rapid decline in oil prices, mean that cash flows were lower than previously forecast and the Company was in breach of certain

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

2. Basis of Presentation - continued

covenants under its US\$275 million senior secured bonds (the "Bonds") (issued by the Company's wholly owned subsidiary Iona Energy Company (UK) plc as at December 31, 2014).

The Company initiated discussions with its largest bondholders in late 2014 to increase financial flexibility for the Company. On March 27, 2015, bondholders approved a range of amendments to the bond agreement which provide Iona with significant additional financial flexibility including a waiver of financial covenants through 2015 and 2016, conversion of interest to payment-in-kind and a deferral of scheduled 2016 amortization payments. On April 17, 2015, the Company executed an amended and restated Bond agreement (the "Amended and Restated Bond Agreement") among the Issuer and Nordic Trustee ASA, as bond trustee, setting out the terms and conditions of the Bond amendments governing the Bonds. Further details are explained in Note 12 and full details of the amendments can be found in the Amended and Restated Bond Agreement" which was filed on SEDAR.

Related to the terms of those amendments, the Company initiated a review process to consider all options to (i) ensure the business is fully funded to first oil at Orlando, and/or (ii) enable the refinancing of the Bonds.

On July 30, 2015, the Company announced the details of a proposed restructuring (the "Restructuring") of Iona. The Restructuring comprises the following inter-conditional elements:

• Farm out of Orlando and Ronan & Oran to a highly competent financial and technical partner, an upstream subsidiary of a global energy company.
• o Sale of a 25% working interest in Orlando for US\$25.5 million development cost carry plus cash payments to Iona of US\$10.8 million after Orlando first oil.
• o Partner would pay full costs of Ronan & Oran technical studies to earn an option to earn a 66.67% working interest in return for funding full costs of an appraisal well with a drill-ordrop decision required by end of 2015.
• Funding arrangements agreed with a number of industry counterparties who would defer payment or provide loans to fund capex related to the Orlando field.
• o All financing provided by industry counterparties at zero interest rate.
• Bond debt to be reduced to US\$120 million.
• o A cash repayment to bondholders of US\$24 million.
• o Bondholders reducing the aggregate amount of outstanding Bonds to US\$120 million.
• o Remaining Bonds in excess of US\$120 million being exchanged for new common shares in the Company representing 87% of the pro forma issued and outstanding common shares.
• o Interest payments to be payment-in-kind at a coupon rate of 10% until repayment of the industry funding (reverting to cash interest at 9.5% once the industry funders have been repaid).

On August 6, 2015, the Company announced that bondholders had approved the Restructuring.

All of the elements of the Restructuring described above are in agreed form but remain subject to negotiation and execution of final documentation. Some transactions or arrangements are subject to final Board approvals of counterparties, confirmatory legal due diligence and third party, co-venturer and regulatory consents. The Company envisages implementing all arrangements or transactions by the end of September 2015.

There remains significant uncertainty with regard to the implementation of the Restructuring. In the event that the Restructuring is not implemented by September 30, 2015 then the Company will likely default under the terms of the Bonds. In an event of default, bondholders could require immediate repayment of the Bonds. These conditions indicate the existence of a material uncertainty which would cast significant doubt as to the Company's ability to continue as a going concern and the Company might be unable to realize its assets and discharge its liabilities in the normal course of business.

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

2. Basis of Presentation - continued

Nevertheless, after making enquiries and considering the uncertainties described above, management has a reasonable expectation that the Company will have adequate resources to continue in operational existence for the foreseeable future. For these reasons, management continue to adopt the going concern basis of accounting in preparing the consolidated financial statements and these consolidated financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.

Changes in accounting policies

As of January 1, 2015, the Company adopted several new IFRS interpretations and amendments in accordance with the transitional provisions of each standard. The adoption of these standards and amendments did not impact the Company.

• IAS 19 Employee contributions amendments effective January 1, 2015
• IFRS 2 Definitions of vesting conditions amendments effective January 1, 2015
• IFRS 8 Aggregation of operating segments amendments effective January 1, 2015
• IFRS 8 Reconciliation of the total reportable segments' assets to the entity's assets amendments effective January 1, 2015
• IAS 16 and IAS 38 Revaluation method proportionate restatement of accumulated depreciation/amortization amendments effective January 1, 2015
• IAS 24 Key management personnel amendments effective January 1, 2015
• IFRS 3 Scope exceptions for joint ventures amendments effective January 1, 2015
• IFRS 13 Portfolio exception amendments effective January 1, 2015
• IAS 40 Ancillary services amendments effective January 1, 2015

Future Changes in Accounting Policies

The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective. The Company is currently evaluating the impact of the adoption of these standards and amendments. The adoption of these standards and amendments are not expected to significantly impact the Company.

In May 2014, the IASB issued IFRS 15 "Revenue from Contracts with Customers," which replaces IAS 18 "Revenue," IAS 11 "Construction Contracts," and related interpretations. The standard is required to be adopted either retrospectively or using a modified transition approach for fiscal years beginning on or after January 1, 2017, with earlier adoption permitted. IFRS 15 will be applied by Iona on January 1, 2017 and the Company is currently evaluating the impact of the standard on Iona's financial statements.

In July 2014, the IASB completed the final elements of IFRS 9 "Financial Instruments." The Standard supersedes earlier versions of IFRS 9 and completes the IASB's project to replace IAS 39 "Financial Instruments: Recognition and Measurement." IFRS 9, as amended, includes a principle-based approach for classification and measurement of financial assets, a single 'expected loss' impairment model and a substantially-reformed approach to hedge accounting. The Standard will come into effect for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. IFRS 9 will be applied by Iona on January 1, 2018 and the Company is currently evaluating the impact of the standard on Iona's financial statements.

Other future standards and interpretations, and amendments to standards and interpretations resulting from improvements to IFRS that are not expected to have any impact on the accounting policies, financial position or performance of the Company are:

• IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - amendments effective January 1, 2016
• IFRS 10, IFRS 12 and IAS 28 Investment Entities amendments effective January 1, 2016

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

2. Basis of Presentation - continued

• IFRS 11 Accounting for Acquisitions of Interests in Joint Operations amendments effective January 1, 2016
• IFRS 14 Regulatory Deferral Accounts amendments effective January 1, 2016
• IAS 1 Disclosure Initiative amendments effective January 1, 2016
• IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization amendments effective January 1, 2016
• IAS 16 and IAS 41 Bearer Plants amendments effective January 1, 2016
• IAS 27 Equity Method in Separate Financial Statements amendments effective January 1, 2016
• IFRS 5 Non-current Assets Held for Sale and Discontinued Operations amendments effective January 1, 2016
• IFRS 7 Servicing Contracts amendments effective January 1, 2016
• IFRS 7 Applicability of the offsetting disclosures to condensed interim financial statements amendments effective January 1, 2016
• IAS 19 Discount Rate amendments effective January 1, 2016
• IAS 34 Disclosure of information 'elsewhere in the interim financial report amendments effective January 1, 2016

3. Revenue

		Three Months Ended		Six Months Ended
	2015	June 30, 2014	2015	June 30, 2014
Crude oil	13,790	23,860	20,358	52,775
Natural gas	2,140	1,160	3,580	5,298
Royalty interest	364	2,080	415	4,434
Condensate	42	-	72	241
	16,336	27,100	24,425	62,748

Revenue from two major customers exceeded 10% of group consolidated revenue for the six months ended June 30, 2015 which amounted to \$12.9 million and \$7.5 million (2014: two major customers amounting to \$33.1 million and \$13.9 million), respectively, arising from sales of crude oil.

4. Segmental Information

The Company's reportable segments and geographical segments are the United Kingdom (North Sea) and the United States. The corporate reportable segment includes the Company's corporate and financing activities.

The accounting policies used for the reportable segments are the same as the Company's accounting policies. For the purposes of monitoring segment performance and allocating resources between segments, the Company's executive officers monitor the revenue, profitability and attributable assets of each segment. All assets are allocated to reportable segments. The following tables show information regarding the Company's segments.

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

4. Segmental Information - continued

	Three Month Period Ended June 30, 2015
	United	United
	Kingdom	States	Corporate	Total
Revenue	16,336	-	-	16,336
Operating costs	(5,928)	-	-	(5,928)
Depletion, depreciation and amortization	(13,378)	-	-	(13,378)
Gross (loss)	(2,970)	-	-	(2,970)
Impairment of oil and gas properties	(13,398)	-	-	(13,398)
Other expenses, net finance costs	(12,182)	(6)	(380)	(12,568)
Taxation	(18,637)	-	-	(18,637)
Net (loss)	(47,187)	(6)	(380)	(47,573)
			Six Month Period Ended June 30, 2015
	United	United
	Kingdom	States	Corporate	Total
Revenue	24,425	-	-	24,425
Operating costs	(13,491)	-	-	(13,491)
Depletion, depreciation and amortization	(19,431)	-	-	(19,431)
Gross (loss)	(8,497)	-	-	(8,497)
Impairment of oil and gas properties	(13,398)	-	-	(13,398)
Other expenses, net finance costs	(9,403)	(6)	(690)	(10,099)
Taxation	(29,128)	-	-	(29,128)
Net (loss)	(60,426)	(6)	(690)	(61,122)
		As at June 30, 2015
Exploration and evaluation assets	40,458	938	-	41,396
Property and equipment	226,549	-	-	226,549
Total assets	385,472	938	559	386,969
Total liabilities	370,841	-	697	371,538
Other Segment Information
Capital Expenditure	1,428	-	-	1,428
			Three Month Period Ended June 30, 2014
	United	United
	Kingdom	States	Corporate	Total
Revenue	27,100	-	-	27,100
Operating cost	(11,103)	-	-	(11,103)
Depletion, depreciation and amortization	(16,670)	-	-	(16,670)
Gross (loss)	(673)	-	-	(673)
Other expenses, net finance costs	(21,869)	(4)	(1,519)	(23,392)
Taxation	(3,962)	-	-	(3,962)
Net (loss)	(26,504)	(4)	(1,519)	(28,027)
			Six Month Period Ended June 30, 2014
	United	United
	Kingdom	States	Corporate	Total
Revenue	62,748	-	-	62,748
Operating costs	(17,611)	-	-	(17,611)
Depletion, depreciation and amortization	(35,598)	-	-	(35,598)
Gross profit	9,539	-	-	9,539
Other expenses, net finance costs	(31,151)	(28)	(1,708)	(32,887)
Taxation	(5,017)	-	-	(5,017)
Net (loss)	(26,629)	(28)	(1,708)	(28,365)

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

4. Segmental Information - continued

	As at December 31, 2014
Exploration and evaluation assets	39,996	938	-	40,934
Property and equipment	250,499	-	-	250,499
Total assets	458,825	938	395	460,158
Total liabilities	383,794	-	863	384,657
Other Segment Information
Capital Expenditure	1,631	-	-	1,631

5. Income Tax

The Company calculates the period income tax expense using the tax rate that would be applicable to the expected total annual earnings. The major components of income tax expense in the interim condensed statement of profit or loss are:

	Three Months Ended June 30, 2015	Three Months Ended June 30, 2014	Six Months Ended June 30, 2015	Six Months Ended June 30, 2014
Income Taxes
Current income tax expense	-	-	-	-
Deferred tax expense (Note 8)	18,637	3,962	29,128	5,017
Income tax expense recognized in statement of profit or loss	18,637	3,962	29,128	5,017

6. Restricted Cash

Current

At June 30, 2015, the Company had a current asset of \$55,087,000 (December 31, 2014: \$55,478,000) which includes \$55,000,000 (December 31, 2014: \$55,000,000) of restricted cash related to bond proceeds. Currently, the Company cannot utilize restricted cash during the Bond review process (Note 12). The bond proceeds can only be utilized for capital expenditure on the development of Orlando and Kells. Upon confirmation that both Orlando and Kells have reached first oil any remaining funds will become unrestricted.

Non-Current

At June 30, 2015 the Company had \$42,000 of restricted cash (December 31, 2014: \$52,000) held as deposits for work commitment guarantees contained in exploration contracts in Alaska in the United States.

At June 30, 2015, the Company had \$8,633,000 of restricted cash (December 31, 2014: \$8,560,000) held for the Company's decommissioning liabilities on the Trent & Tyne properties.

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

7. Inventory

	June 30,	December 31,
	2015	2014
Inventory at cost	3,202	2,488
Write-down of inventory	(874)	(1,545)
Total	2,328	943

Inventory entirely relates to crude oil inventory in the storage tank at June 30, 2015 and December 31, 2014. Inventory is valued at the lower of cost, defined as operating expenses per boe, plus depletion per boe multiplied by the crude stock on hand in bbls and selling price less costs to sell. At June 30, 2015 and December 31, 2014 inventory was recorded at selling price less costs to sell.

8. Deferred Tax Asset

As at June 30, 2015 the deferred tax asset has decreased to \$25.1 million from \$54.2 million at December 31, 2014. This decrease is comprised of \$10.5 million following a reduction in taxation rates of oil and gas companies in the UK from 62% to 50% effective January 1, 2015; and, \$18.6 million as a result of the reduction in estimated future taxable profits available to offset the Company's accumulated tax losses (see Note 11).

Movements of the Company's temporary differences for the 6 month period ended June 30, 2015 are as follows:

As at December 31, 2014	54,200
Effect of change in tax rate	(10,491)
Partial derecognition of deferred tax asset	(18,637)
As at June 30, 2015	25,072

9. Financial Instruments and Risk Management Contracts

To estimate fair value of the risk management contracts, the Company uses quoted market prices when available, or industry accepted third-party models and valuation methodologies that utilize observable market data. In addition to market information, the Company incorporates transaction specific details that market participants would utilize in a fair value measurement, including the impact of non-performance risk. The Company characterizes inputs used in determining fair value using a hierarchy that prioritizes inputs depending on the degree to which they are observable. However, these fair value estimates may not necessarily be indicative of the amounts that could be realized or settled in a current market transaction.

The three levels of the fair value hierarchy are as follows:

• Level 1 - inputs represent quoted prices in active markets for identical assets or liabilities (for example, exchange-traded commodity derivatives). Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

• Level 2 - inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, market interest rates, and volatility factors, which can be observed or corroborated in the marketplace.

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

9. Financial Instruments and Risk Management Contracts - continued

• Level 3 - inputs that are less observable, unavailable or where the observable data does not support the majority of the instruments fair value.

In forming estimates, the Company utilizes the most observable inputs available for valuation purposes. If a fair value measurement reflects inputs of different levels within the hierarchy, the measurement is categorized based upon the lowest level of input that is significant to the fair value measurement. The valuation of commodity put and call options, and the prepayment option is based on similar transactions observable in active markets or industry standard models that primarily rely on market observable inputs. Substantially all of the assumptions for industry standard models are observable in active markets throughout the full term of the instrument. These are categorized as Level 2 and are designated as held-fortrading.

The following table presents the Company's material financial instruments measured at fair value for each hierarchy level as of June 30, 2015:

	Level 1	Level 2	Level 3	Total Fair Value
Current assets
Derivative financial assets	-	2,533	-	2,533
Current liabilities
Derivative financial instrument liabilities	-	-	-	-
Non-current liabilities
Derivative financial instrument liabilities	-	8,711	-	8,711

The table below presents the total (loss) / gain on financial instruments that has been disclosed through the consolidated statement of profit or loss and comprehensive loss:

	Three Months Ended			Six Months Ended
	June 30, 2015		June 30, 2015
	2015	2014	2015	2014
Unrealized (loss) / gain on derivative instruments	(2,108)	(2,832)	7,025	(2,544)
Realized (loss) / gain on derivative instruments	1,627	(5,930)	5,242	(5,930)
Total (loss) / gain on derivative instruments	(481)	(8,762)	12,267	(8,474)

All other financial assets are classified as loans and receivables and are accounted for on an amortized cost basis. All financial liabilities are classified as other liabilities. At June 30, 2015, the fair value of the Bonds is \$79.1 million (December 31, 2014: \$212 million) based on market rates available to the Company. The carrying amount of the other financial assets and liabilities approximates the fair value due to its short maturities.

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

9. Financial Instruments and Risk Management Contracts - continued

i) Commodity Risk

The table above presents the total loss on risk management contracts that has been disclosed through the statement of profit or loss and comprehensive loss. Commodity price risk related to crude oil prices is the Company's most significant market risk exposure. Crude oil prices and quality differentials are influenced by worldwide factors such as OPEC actions, political events and supply and demand fundamentals. The Company is also exposed to natural gas price movements on uncontracted gas sales. Natural gas prices, in addition to the worldwide factors noted above, can also be influenced by local market conditions. The Company's expenditures are subject to the effects of inflation, and prices received for the product sold are not readily adjustable to cover any increase in expenses from inflation.

The Company may periodically use different types of derivative instruments to manage its exposure to price volatility, thus mitigating fluctuations in commodity-related cash flows.

The table below shows Iona's net position on a quarterly basis as at June 30, 2015 of the outstanding call and put option structures sold to and bought from Britannic Trading Limited on August 14, 2014 and October 27, 2014 respectively.

		Call Options (bbls)		Put Options (bbls)
		Sold	Strike (\$/bbl)	Bought	Strike (\$/bbl)
2015	Q3	80,715	92.75	80,715	80.00
	Q4	74,254	92.75	74,254	80.00
2018	Q4	274,998	90.00	-	-
2019	Q1	274,998	90.00	-	-
	Q2	274,998	90.00	-	-
	Q3	274,998	90.00	-	-
	Q4	274,998	90.00	-	-
2020	Q1	275,010	90.00	-	-
		1,804,969		154,969

ii) Interest Risk

Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. The Company currently does not use interest rate hedges. Under the amended Bond terms, the Company has a fixed interest rate on the Bonds of 12.5 percent per annum (until first oil at Orlando when the coupon rate will return to 9.5 percent per annum), which is not linked to any market variables.

iii) Credit Risk

Credit risk is the risk that a counterpary will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Cash, cash equivalents and restricted cash are placed with major financial institutions. The maximum exposure to credit risk is approximate to the carrying value of such financial instruments. The Company does not have an allowance for doubtful accounts as at June 30, 2015, and did not provide for any doubtful accounts nor was it required to write-off any receivables during the period ended June 30, 2015 or 2014.

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

9. Financial Instruments and Risk Management Contracts - continued

iv) Foreign Currency Exchange Risk

The Company operates on an international basis and therefore foreign exchange risk exposures arise from transactions denominated in currency other than the U.S. dollar. The Company is exposed to foreign currency fluctuations as it holds cash and incurs expenditure in property and equipment in foreign currencies. The Company incurs expenditure in Pound sterling, Euros, Norwegian krone, United States dollars and Canadian dollars and is exposed to fluctuations in exchange rates in these currencies. There are no exchange rate contracts in place as at or during the period ended June 30, 2015, June 30, 2014, or thereafter.

Assuming all other variables remain constant, a 1% increase or decrease in foreign exchange rates on the foreign cash and restricted cash balances at June 30, 2015 would have impacted the comprehensive loss of the Company for the six month period ended June 30, 2015 by approximately \$19,000 (six months ended June 30, 2014 – \$26,000).

In addition at June 30, 2015, the Company held approximately \$6,198,000 (£3,941,000) (December 31, 2014: \$16,049,000 (£9,625,000)) of accounts payable in Pound sterling. Assuming all other variables remain constant, a 1% increase or decrease in foreign exchange rates between Pound sterling and US dollar at June 30, 2015 would impact the comprehensive loss of the Company for the six month period ended June 30, 2015 by approximately \$62,000 (six months ended June 30, 2014: \$151,000).

v) Liquidity Risk

Liquidity risk includes the risk that, as a result of the Company's operational liquidity requirements:

• The Company will not have sufficient funds to settle commitments as they become due;
• The Company will be forced to sell financial assets at a value which is less than what they are worth; or
• The Company may be unable to settle or recover a financial asset.

The Company's principal liquidity risk relates to its Bonds. As further outlined in Note 12, the Company has announced a proposed Restructuring which is expected to be implemented by the end of September 2015. See "Going Concern" section of Note 2.

As the Company's industry is very capital intensive, the majority of the spending is related to the Company's capital programs. The Company's goal is to prudently spend its capital. As circumstances change, liquidity risks may necessitate the Company to issue equity, obtain debt financing, or sell assets. The Company's contractual obligations, in addition to those recorded in the condensed consolidated financial statements, are included in Note 17.

10. Exploration and Evaluation Assets and Deferred Costs

	Total
	E&E
As at December 31, 2014	40,934
Additions	462
As at June 30, 2015	41,396

The Company's exploration and evaluation assets ("E&E") consist of costs pertaining to the United Kingdom and the United States.

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

10. Exploration and Evaluation Assets and Deferred Costs - continued

During the three and six months ended June 30, 2015, the Company expensed \$Nil (three months ended June 30, 2014: \$84,000 and six months ended June 30, 2014: \$283,000) of pre-license expenditures.

Following discussions with the Oil and Gas Authority ("OGA"), the Kells licence has been extended to February 2016. Iona continues to hold the associated costs as capitalized E&E assets.

West Wick is classified as a Fallow B Rescued license. Following discussions with OGA during May 2015, Iona now has until the end of October 2015 to commit to an engineering study for the West Wick development. Iona is reviewing a range of options to maximise the value of the West Wick discovery and hence continue to hold the associated costs as capitalized E&E assets.

Property, Payments and Deferred Costs

Upon the approval by OGA of a field development plan in respect of the Kells Oil Field, Iona will be obligated to make a cash payment of \$5.0 million to Fairfield and pay a net royalty of \$2.50 per barrel of production from the Kells Oil Field.

11. Property and Equipment

	Development & Production Oil and Gas Assets	Other Fixed Assets	Total
Cost
At December 31, 2014	480,044	950	480,994
Additions	8,958	16	8,974
At June 30, 2015	489,002	966	489,968
Depletion, depreciation, amortization and impairment
At December 31, 2014	230,762	230	230,992
Charge for the period depletion, depreciation & amortization	19,431	95	19,526
Charge for the period, impairment	13,398	-	13,398
At June 30, 2015	263,591	325	263,916
Exchange differences December 31, 2014	497	-	497
Carrying value at December 31, 2014	249,779	720	250,499
Carrying value at June 30, 2015	225,908	641	226,549

Included in the above is an amount of \$141.3 million (December 31, 2014: \$129.6 million) relating to an asset under construction on which no depreciation is charged.

Finance costs that have been capitalized within oil and gas assets during the period total \$0.5 million (2014: \$Nil), at a weighted average interest rate of 12.02% (2014: Nil).

Included in the above is an amount of \$2.5 million (2014: \$Nil) within oil and gas assets relating to the revision of the Huntington decommissioning asset (see Note 13).

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

11. Property and Equipment - continued

In the second quarter of 2015, the Company has recognized an impairment charge of \$13.4 million with respect to the Huntington producing assets as a result of a reduction in commodity price expectations.

The CGU has been written down to the estimated recoverable amount of \$84.8 million based on fair value less cost of disposal. The estimated fair value was determined using future cash flows adjusted for risks specific to the asset (level 3 hierarchy) and discounted using a before tax discount rate of 10%. The key assumptions in estimating the future cashflows over the remaining economic life of field (expected Q4 2018) for recoverable amounts are anticipated future commodity prices, expected production volumes and operating and development costs.

In assessing the fair value of the Huntington CGU the Company utilized operating inputs consistent with those included in its year-end audited reserves report, a 10% discount rate and oil price forecasts of \$65/bbl for H2 2015, US\$75/bbl for 2016, US\$78/bbl for 2017 and US\$83/bbl for 2018 (as published by Sproule Associates Ltd. as of June 30, 2015). A change of 5% in the forecast oil prices would result in a change in the fair value of approximately \$9.1 million. A change in the discount rate of 1% would result in a change in the fair value of approximately \$1.6 million.

12. Senior Debt Instruments

On March 27, 2015, Iona UK amended the terms of the Bond Agreement as follows:

• Full waiver of financial covenants through to first oil at Orlando including net debt/EBITDA and minimum capitalization ratios.
• Conversion of interest payments to payment-in-kind (i.e. added to principal, therefore non-cash) for 2015 and 2016.
• Increase in the coupon rate from 9.5% to 12.5% until first oil at Orlando at which time the coupon rate will return to 9.5%.
• Scheduled 2016 amortization payments (\$85 million in aggregate) deferred until bond maturity in September 2018.
• New independent director to be appointed to the Board of the Company, and Board to be reduced to not more than six directors.
• Bondholders to receive a fee in the form of non-transferable warrants (the "Warrants") to purchase common shares of the Company representing in aggregate 10% of the existing common shares of the Company. The Warrants shall have an exercise price of CAD\$0.05 per warrant. The Warrants shall be exercisable until September 27, 2018 and will be subject to a hold period of four months and a day from issuance.

The revised maturity schedule is as per the table below:

Payment date	Nominal instalment amount	Premium on nominal instalment
The later of 90 days after first oil from Orlando and March 2017	41,250	5%
September 2017	41,250	4%
March 2018	41,250	3%
September 2018 (Maturity)	The remaining Outstanding Bonds	2%

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

12. Senior Debt Instruments – continued

As required by IAS 32 and 39 the Company assessed if the amendments resulted in a substantial modification of terms and future cash flow (defined as a greater than 10% change). The Company determined that the amendments were not significant and therefore all costs relating to the amendments have been deferred and amortized using the effective interest rate method.

The Warrants were issued on May 8, 2015 and it was determined that the Warrants represented a fee paid to the bondholders to compensate for the amendments. As such the fair value of the Warrants were calculated using a Black-Scholes option pricing model with the following assumptions.

	March 27, 2015
Stock price	CAD\$ 0.07
Exercise price	CAD\$ 0.05
Dividend yield	Nil
Expected volatility	51%
Risk-free rate	0.63%
Expected life	3.5 years

The effective interest rate on the bond at June 30, 2015 was 12.02%.

As at December 31, 2014	267,493
Amortization of discount and transaction costs	932
Paid in kind interest	21,849
Amendment Fee (Warrants)	(986)
As at June 30, 2015	289,288

As at June 30, 2015 the fair value of the Bonds was \$79.1 million (December 31, 2014: \$212 million). The Bonds mature on September 30, 2018.

On April 17, 2015, the Company executed an amended and restated Bond agreement (the "Amended and Restated Bond Agreement") among the Issuer and Nordic Trustee ASA, as bond trustee, setting out the terms and conditions of the Bond amendments governing the Bonds. Full details of the amendments can be found in the Amended and Restated Bond Agreement which was filed on SEDAR.

On July 30, 2015, the Company announced the details of a proposed Restructuring of Iona. The Restructuring comprises the following inter-conditional elements:

• Farm out of Orlando and Ronan & Oran to a highly competent financial and technical partner, an upstream subsidiary of a global energy company.
• o Sale of a 25% working interest in Orlando for US\$25.5 million development cost carry plus cash payments to Iona of US\$10.8 million after Orlando first oil.
• o Partner would pay full costs of Ronan & Oran technical studies to earn an option to earn a 66.67% working interest in return for funding full costs of an appraisal well with a drill-ordrop decision required by end of 2015.
• Funding arrangements agreed with a number of industry counterparties who would defer payment or provide loans to fund capex related to the Orlando field.
• o All financing provided by industry counterparties at zero interest rate.
• Bond debt to be reduced to US\$120 million.
• o A cash repayment to bondholders of US\$24 million.
• o Bondholders reducing the aggregate amount of outstanding Bonds to US\$120 million.
• o Remaining Bonds in excess of US\$120 million being exchanged for new common shares in the Company representing 87% of the pro forma issued and outstanding common shares.

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

12. Senior Debt Instruments – continued

o Interest payments to be payment-in-kind at a coupon rate of 10% until repayment of the industry funding (reverting to cash interest at 9.5% once the industry funders have been repaid).

On August 6, 2015, the Company announced that bondholders had approved the Restructuring.

All of the elements of the Restructuring described above are in agreed form but remain subject to negotiation and execution of final documentation. Some transactions or arrangements are subject to final Board approvals of counterparties, confirmatory legal due diligence and third party, co-venturer and regulatory consents. The Company envisages implementing all arrangements or transactions by the end of September 2015.

13. Decommissioning Provision

36,158
(2,824)
137
33,471

The total future decommissioning liability was calculated by management based on its net ownership interest in the Orlando, Huntington and Trent & Tyne fields and the estimated costs to be incurred in future periods to reclaim and abandon the wells. The decommissioning liability was measured at the end of the period using pre-tax, risk-free discount rates of 1.07 to 2.14 percent and an inflation rate of 2.00 percent over the estimated life of the asset to calculate the present value of the decommissioning liability. The costs are expected to be incurred at various intervals over the next 17 years. An abandonment estimate review in relation to the Huntington field was performed during the three month period ended June 30, 2015 resulting in a reduction to the liability of \$2.5 million.

14. Provision for Contingent Payments

On June 7, 2012, Iona UK entered into a sale and purchase agreement to acquire from Sorgenia E&P (UK) Limited and MPX North Sea Limited a 65% interest in P.1606 Block 3/3b of the Orlando Field and a 65% interest in P.1607 Block 3/8d of the Kells Field. Under the terms of the agreement, future staged payments will be made by Iona UK to Sorgenia and MPX commencing six months after first production from Orlando or Kells. The first payment will be \$7.0 million with additional payments of \$7.0 million, \$7.0 million, \$4.0 million, and \$4.0 million made every six months thereafter respectively, amounting to a total payment of \$29.0 million over three years.

The total amount payable of \$29.0 million has been discounted over the period which the above payments are expected to be made based on management's best estimate of first production from Orlando in Q4 2016 using a pre tax risk free interest rate of 1.16% giving a net present value at initial recognition of \$27.7 million which will accrete over the life of the provision. The effective interest rate of this provision is 1.33%. The Company recognized a corresponding asset addition of \$27.7 million in respect of Orlando at that date. The accretion charge for the three and six months ended June 30, 2015 was \$93,000 (2014: \$Nil) and \$185,000 (2014: \$Nil) respectively.

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

14. Provision for Contingent Payments - continued

27,743
185
27,928

On February 21, 2013, the Company completed the sale of a 25% working interest in the Orlando and Kells fields to Volantis Exploration (a subsidiary of Atlantic Petroleum) for total gross proceeds of \$36.8 million on close and a pro-rata share of the future staged payment obligations referred to above. An asset has not been recognized at this stage.

15. Share Capital

The Company has authorized an unlimited number of Common shares, without nominal or par value and unlimited number of Preferred shares, issuable in series. The Company, as at June 30, 2015 had the following common shares, warrants and share options outstanding:

(a) Issued

	June 30, 2015
Common shares	Shares	Amounts
Opening balance, December 31, 2014	370,580,868	178,717
Balance June 30, 2015	370,580,868	178,717

(b) Stock options

During the six month period \$64,000 (2014: \$119,000) of share based compensation expense was included in general and administrative expenses.

		Weighted Average
Stock Options	Number of Options	Exercise Price CAD\$
Opening balance, December 31, 2014	29,597,500	\$0.56
Granted	-	-
Exercised	-	-
Expired	(6,900,000)	\$0.60
Forfeited	(3,525,000)	\$0.58
Ending balance, June 30, 2015	19,172,500	\$0.54
Exercisable, end of period	14,870,000	\$0.57

Date of Grant	Number of Options Outstanding	Exercise Price CAD\$	Weighted Average Remaining Contractual Life	Date of Expiry	Number Exercisable June 30, 2015
April 12, 2012	9,900,000	\$0.57	1.79 years	April 12, 2017	9,900,000
March 5, 2013	4,110,000	\$0.63	2.68 years	March 5, 2018	3,307,500
October 23, 2013	300,000	\$0.63	3.32 years	October 23, 2018	300,000
April 30, 2014	300,000	\$0.54	3.84 years	April 30, 2019	175,000
July 1, 2014	62,500	\$0.49	3.97 years	June 19, 2019	62,500
September 1, 2014	4,500,000	\$0.40	3.18 years	September 1, 2019	1,125,000
	19,172,500				14,870,000

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

15. Share Capital - continued

The Company's share options granted vest as follows: ¼ immediately and ¼ vesting on the first, second and third anniversary dates and expire five years from the date of issue.

The fair value of the options was estimated using the Black Scholes option pricing model with the following assumptions:

	June 30, 2015
Average expected volatility	49% - 51%
Risk-free rate	1.35% - 1.47%
Expected life	5 years
Fair Value per Option	CAD\$0.15 – CAD\$0.40

An estimated forfeiture rate of 5% (2014: 5%) is used when recording share-based payments. The expected volatility was determined via the Company's historical averages.

16. Share Warrants

	June 30, 2015
	Warrants	Amounts
Warrants
Opening balance, December 31, 2014	3,750,000	-
Issued in the period	37,058,086	986
Balance June 30, 2015	40,808,086	986

The fair value of the warrants issued was estimated using the Black Scholes option pricing model with the following assumptions:

	March 27, 2015
Fair value at grant date:	CAD\$ 0.07
Exercise price	CAD\$ 0.05
Dividend yield	Nil
Expected volatility	51%
Risk-free rate	0.63%
Expected life	3.5 years

Date of Grant	Number of Warrants Outstanding	Exercise Price CAD\$	Weighted Average Remaining Contractu al Life	Date of Expiry	Number Exercisable June 30, 2015
August 29, 2014	3,750,000	\$0.48 - \$1.00	4.17 years	September 1, 2019	3,750,000
April 17, 2015	37,058,086	\$0.05	3.24 years	September 27, 2019	37,058,086
	40,808,086				40,808,086

Iona Energy Inc. Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

17. Related Party Transactions

During the three and six months ended June 30, 2015, the Company was charged \$95,000 (2014 - \$65,000) and \$130,000 (2014 - \$99,000) respectively, in legal fees by a law firm where a director of the Company is a partner, of which \$38,000 is included in accounts payable and accrued liabilities as at June 30, 2015 and \$49,000 as at June 30, 2014.

Included in accounts receivable is \$94,092 (2014 - \$117,483) due from a former officer and director of the Company who resigned from the Company's management team and Board. The amounts owing are noninterest bearing and secured by 559,524 common shares. The Company expects full repayment in the future.

On September 12, 2014, the Company provided loans to two members of senior management via Demand Promissory Notes for a total amount of \$401,850 (CAD\$500,000) bearing interest at 3.25%. These notes are secured by 1,250,000 outstanding common shares and 1,250,000 warrants issued on August 29, 2014. At June 30, 2015 these promissory notes remained outstanding and are included in Accounts Receivable. The Company expects full repayment of the Demand Promissory Notes in the future.

All related party transactions are in the normal course of operations and have been measured at the agreed to exchange amounts, which is the amount of consideration established and agreed to by the related parties.

18. Commitments and Contingencies

In addition to accounts payable, accrued liabilities and senior debt instrument obligations (see Note 12) and based on management's best estimate, the Company has the following contractual obligations:

	June 30, 2015
	Payments Due in Period
Contractual Obligations	Total	Less than 1 Year	1 to 3 Years	3 to 5 Years	More than 5 Years
U.S. Segment
Exploration leases	204	17	68	51	68
UK Segment
Office lease	3,921	451	1,128	903	1,439
Equipment leases	29,947	8,403	21,544	-	-
Drilling, completion, facility construction	42,385	19,219	23,166	-	-
Total UK Segment	76,253	28,073	45,838	903	1,439
Total Contractual Obligations	76,457	28,090	45,906	954	1,507

During the six month period \$224,000 (2014: \$219,000) of office rent was charged through general and administrative expense and \$5,566,000 (2014: \$5,702,000) relating to the rental of the FPSO was charged through operating expense.

Iona Energy Inc. Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

19. Capital Risk Management

The Company manages its capital with the prime objectives of safeguarding the business as a going concern, creating investor confidence, maximizing long-term returns and maintaining an optimal structure to meet its financial commitments and to strengthen its working capital position. At present, the capital structure of the Company is primarily composed of senior secured bonds and shareholders' equity. The Company's strategy is to access capital primarily through equity issuances and other alternative forms of debt financing. The Company actively manages its capital structure and makes adjustments relative to changes in economic conditions and the Company's risk profile. In order to uphold its capital structure and to meet the liquidity and sufficient funding tests of the senior secured bonds, the Company may from time to time issue shares and adjust its capital spending to manage current working capital levels.

As at June 30, 2015, the Company had net assets of \$15.4 million, working capital of \$73.1 million and commitments due in the next 12 months as further detailed in Note 18.

There remains significant uncertainty with regard to the implementation of the Restructuring discussed in the "Going Concern" section of Note 2. In the event that the Restructuring is not implemented by September 30, 2015 then the Company will likely default under the terms of the Bonds. In an event of default, bondholders could require immediate repayment of the Bonds. These conditions indicate the existence of a material uncertainty which would cast significant doubt as to the Company's ability to continue as a going concern and the Company might be unable to realize its assets and discharge its liabilities in the normal course of business.

20. Subsequent Events

On July 1, 2015 Iona's UK subsidiary, Iona Energy Company (UK) plc, entered into a definitive sale and purchase agreement with GDF SUEZ E&P UK Ltd (part of the ENGIE Group) in respect of the Company's 2.5% interest in the Esmond Transportation System which includes Iona's associated interest in the EAGLES pipeline. The transaction completed in August 2015 and Iona received cash at closing of £1.3 million (approximately US\$2.0 million).

On July 30, 2015, the Company announced the details of a proposed Restructuring of Iona. The Restructuring comprises the following inter-conditional elements:

• Farm out of Orlando and Ronan & Oran to a highly competent financial and technical partner, an upstream subsidiary of a global energy company.
• o Sale of a 25% working interest in Orlando for US\$25.5 million development cost carry plus cash payments to Iona of US\$10.8 million after Orlando first oil.
• o Partner would pay full costs of Ronan & Oran technical studies to earn an option to earn a 66.67% working interest in return for funding full costs of an appraisal well with a drill-ordrop decision required by end of 2015.
• Innovative funding arrangements agreed with a number of industry counterparties who would defer payment or provide loans to fund capex related to the Orlando field.
• o All financing provided by industry counterparties at zero interest rate.
• Bond debt to be reduced from approximately US\$292 million to US\$120 million.
• o A cash repayment to bondholders of US\$24 million.
• o Bondholders reducing the aggregate amount of outstanding Bonds to US\$120 million.
• o Remaining Bonds in excess of US\$120 million being exchanged for new common shares in the Company representing 87% of the pro forma issued and outstanding common shares.
• o Interest payments to be payment-in-kind at a coupon rate of 10% until repayment of the industry funding (reverting to cash interest at 9.5% once the industry funders have been repaid).

Notes to the Condensed Consolidated Financial Statements - continued For the three and six months ended June 30, 2015 and 2014

(Unaudited - Tabular amounts are expressed in thousands US dollars, except per share amounts or amounts as otherwise noted.)

20. Subsequent Events - continued

On August 6, 2015, the Company announced that bondholders had approved the Restructuring.

All of the elements of the Restructuring described above are in agreed form but remain subject to negotiation and execution of final documentation. Some transactions or arrangements are subject to final Board approvals of counterparties, confirmatory legal due diligence and third party, co-venturer and regulatory consents. The Company envisages implementing all arrangements or transactions by the end of September 2015.

CORPORATE INFORMATION

DIRECTORS OFFICERS OFFICES

Rod Maxwell (1)(2)(3)(4) United Kingdom

Jay Zammit (1)(2)(4)

Bill McCall (1)(2)(3)(4) Stirlingshire, Scotland

(1)Member of Audit Committee REGISTER AND

(3)Member of Reserve Committee Calgary, Alberta, Canada (4)Member of the Governance Committee AUDITOR

Iain McKendrick Iain McKendrick Calgary, Canada Aberdeen, Scotland Executive Chairman Registered Office

Tom Reynolds Tom Reynolds Calgary, AB, T2P 2Z1 Aberdeen, Scotland President and Chief Executive Officer TEL: +587.889.8959

Calgary, Alberta Chief Financial Officer 20 Queens Road

Suite 1600, 333-7th Ave SW

Donald Copeland (1)(3)(4) Robert Gair Aberdeen, United Kingdom

Aberdeen AB15 4ZT Calgary, Alberta TEL: +44.1224.228400

Calgary, Alberta WEBSITE: www.ionaenergy.com EMAIL: info@ionaenergy.com

(2)Member of Compensation TRANSFER AGENT Committee Olympia Trust

Deloitte LLP Aberdeen, Scotland

EXCHANGE LISTINGS The TSX Venture Exchange TSX-V: INA

SECURITIES FILINGS

www.sedar.com

Information requests and other Investor relations inquiries can be directed to:

info@ionaenergy.com or by telephone at +403.444.5416