Energy SpA — Interim / Quarterly Report 2015

May 27, 2015

Iona Energy Inc. Condensed Consolidated Financial Statements - Unaudited For the three month period ended March 31, 2015

Contents

Condensed Consolidated Statements of Financial Position	2
Condensed Consolidated Statements of Profit or Loss
and Comprehensive Loss	3
Condensed Consolidated Statements of Change	in Shareholders'
Equity	4
Condensed Consolidated Statements of Cash Flows	5
Notes to the Condensed Consolidated Financial Statements	6 –21
Corporate Information	22

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

(In thousands of US dollars)	Notes	March 31, 2015	December 31, 2014
ASSETS
Current Assets
Cash and cash equivalents		10,209	31,565
Accounts receivable		7,780	6,643
Prepaid expenses		3,138	3,467
Restricted cash	6	55,082	55,478
Inventory	7	1,149	943
Derivative instruments	9	5,597	7,817
Total Current Assets		82,955	105,913
Restricted cash	6	8,190	8,612
Deferred tax asset	8	43,709	54,200
Exploration and evaluation assets	10	41,133	40,934
Property and equipment	11	249,325	250,499
Total Non-Current Assets		342,357	354,245
Total Assets		425,312	460,158
LIABILITITES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities		10,249	32,243
		10,249	32,243
Total Current Liabilities
Non-Current Liabilities
Senior debt instrument	12	280,932	267,493
Decommissioning provision	13	34,546	36,158
Provision for contingent payments	14	27,835	27,743
Derivative liabilities	9	9,667	21,020
Total Non-Current Liabilities		352,980	352,414
Total Liabilities		363,229	384,657
Shareholders' Equity
Share capital	15	178,717	178,717
Contributed surplus		11,511	11,351
Accumulated other comprehensive loss		(7,879)	(7,850)
Retained (deficit)		(120,266)	(106,717)
		62,083	75,501
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity		425,312	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 amounts)	Notes		Three Months Ended March 31, 2015		Three Months Ended March 31, 2014
Revenue Operating costs Depletion, depreciation and amortization Gross (Loss) / Profit	3		8,089 (7,563) (6,054) (5,528)		35,648 (6,508) (18,928) 10,212
Expenses General and administrative expenses Pre-license costs Impairment of goodwill Total Expenses	10		(2,268) - - (2,268)		(1,346) (199) (633) (2,178)
(Loss) / Profit before other expenses			(7,796)		8,034
Gain on derivative instruments Finance costs Finance income Foreign exchange (loss) / gain Net (Loss) / Profit before tax	9		12,747 (8,007) 3 (5) (3,058)		288 (7,788) 2 181 717
Income tax Net Loss for the Period			(10,491) (13,549)		(1,055) (338)
Other comprehensive income Other comprehensive income to be reclassified to profit or loss in subsequent periods (net of tax): Unrealized foreign exchange gain on net investments Exchange loss on retranslation of foreign operations			12,264 (12,293)		5,519 (5,574)
Net other comprehensive loss to be reclassified to profit or loss in subsequent periods			(29)		(55)
Total Comprehensive Loss for the Period			(13,578)		(393)
Net (loss) / earnings per share - basic - diluted		\$ \$	(0.04) (0.04)	\$ \$	(0.00) (0.00)
Weighted average shares outstanding - basic - diluted			370,580,868 370,580,868		366,830,868 366,830,868

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

		Share	Contributed	Accumulated Other Comprehensive	Retained	Total
(In thousands of US dollars)	Notes	Capital	Surplus	Loss	(Deficit)	Equity
Balance December 31, 2014		178,717	11,351	(7,850)	(106,717)	75,501
Net loss for the period		-	-	-	(13,549)	(13,549)
Share based payments	15(c)	-	160	-	-	160
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		-	-	(12,293)	-	(12,293)
Unrealized foreign exchange on net investments		-	-	12,264	-	12,264
Balance March 31, 2015		178,717	11,511	(7,879)	(120,266)	62,083

(In thousands of US dollars)	Notes	Share Capital	Contributed Surplus	Accumulated Other Comprehensive Income / (Loss)	Retained Earnings / (Deficit)	Total Equity
Balance December 31, 2013		177,359	10,151	(8,055)	12,733	192,188
Net loss for the period		-	-	-	(338)	(338)
Share based payments	15(c)	-	38	-	-	38
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		-	-	(5,574)	-	(5,574)
Unrealized foreign exchange on net investments		-	-	5,519	-	5,519
Balance March 31, 2014		177,359	10,189	(8,110)	12,395	191,833

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

		Three Months	Three Months
		Ended March 31	Ended March 31
(In thousands of US dollars)	Notes	2015	2014
Cash flows (used in) / from operating activities Net loss for the period Items not involving cash:		(13,549)	(338)
Depletion, depreciation and amortization		6,103	18,941
Unrealized foreign exchange loss / (gain)		84	(108)
Unrealized gain on fair value of derivative instruments		(9,133)	(288)
Income tax expense	5	10,491	1,055
Share based payments	15(c)	160	38
Finance costs		8,007	7,788
		2,163	27,088
Changes in non-cash working capital balances:
Accounts receivable		(1,137)	488
Prepaid expenses Inventory		329 (207)	(365) (127)
Accounts payable and accrued liabilities		(12,478)	893
Cash flow (used in) / generated from operating
activities		(11,330)	27,977
Cash flows used in financing activities Bank fees and other interest charges		(172)	1
Interest on bond		-	(13,063)
Cash flow used in financing activities		(172)	(13,062)
Cash flows (used in) investing activities
Expenditures on property and equipment	11	(10,358)	(777)
Expenditures on exploration and evaluation	10	(199)	(2,404)
Decrease in restricted cash		818	3,116
Cash flow used in investing activities		(9,739)	(65)
Effect of exchange rate changes on cash		(115)	55
Increase in cash and cash equivalents		(21,356)	14,905
Cash and cash equivalents, beginning of period		31,565	19,808
Cash and cash equivalents, end of period		10,209	34,713

Iona Energy Inc. Notes to the Condensed Consolidated Financial Statements For the three months ended March 31, 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:

Ownership

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 May 26, 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 March 31, 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, has suffered numerous production interruptions in recent months, 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

Iona Energy Inc. Notes to the Condensed Consolidated Financial Statements - continued For the three months ended March 31, 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 has 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. The Company has now received a number of indications of interest and also received term sheets relating to the conditional provision of new funding and currently anticipates being able to present a proposal (the "Proposal") to bondholders for their approval by a simple majority by June 30, 2015. If the Proposal is approved in June then it is required to be further supported by a 66 2/3 majority in a bondholder meeting and implemented by September 30, 2015.

If Iona does not provide a Proposal or a Proposal is not supported by the bondholders then the Company is under an obligation to use its reasonable endeavours to arrange for the issue of a new super senior debt funding (the "Super Senior Funding") to be made available by no later than September 30, 2015. Again based on indications of interest received to date, the Company currently believes that it could present a Super Senior Funding within that time frame.

Both implementation of the Proposal and the Super Senior Funding are subject to bondholders' approval at a bondholders' meeting. There can be no guarantee that bondholders will vote in favour of either the Proposal or the Super Senior Funding. If neither the Proposal nor the Super Senior Funding are supported by bondholders, then the Company will likely default under the terms of the Bonds during 2015. 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.

Nevertheless, after making enquiries and considering the uncertainties described above, management has a reasonable expectation that the Company, with agreement from the bondholders, 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

Notes to the Condensed Consolidated Financial Statements - continued For the three months ended March 31, 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 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
• 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

Notes to the Condensed Consolidated Financial Statements - continued For the three months ended March 31, 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

• IAS 34 – Disclosure of information 'elsewhere in the interim financial report - amendments effective January 1, 2016

3. Revenue

	Three Months Ended	Three Months
	March 31,	Ended March 31,
	2015	2014
Crude oil	6,568	28,915
Natural gas	1,440	4,136
Royalty interest	51	2,353
Condensate	30	244
	8,089	35,648

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.

			Three Month Period Ended March 31, 2015
	United	United
	Kingdom	States	Corporate	Total
Revenue	8,089	-	-	8,089
Operating costs	(7,563)	-	-	(7,563)
Depletion, depreciation and amortization	(6,054)	-	-	(6,054)
Gross loss	(5,528)	-	-	(5,528)
Other expenses, net finance costs	2,780	-	(310)	2,470
Taxation	(10,491)	-	-	(10,491)
Net (loss)	(13,239)	-	(310)	(13,549)
		As at March 31, 2015
Exploration and evaluation assets	40,195	938	-	41,133
Property and equipment	249,325	-	-	249,325
Total assets	423,733	938	641	425,312
Total liabilities	362,568	-	661	363,229

Notes to the Condensed Consolidated Financial Statements - continued For the three months ended March 31, 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 March 31, 2014
	United	United
	Kingdom	States	Corporate	Total
Revenue	35,648	-	-	35,648
Operating costs	(6,508)	-	-	(6,508)
Depletion, depreciation and amortization	(18,928)			(18,928)
Gross Profit	10,212	-	-	10,212
Other expenses, net finance costs	(9,282)	(24)	(189)	(9,495)
Taxation	(1,055)	-	-	(1,055)
Net (loss)	(125)	(24)	(189)	(338)
		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

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	Three Months Ended
	March 31, 2015	March 31, 2014
Income Taxes
Current income tax expense	-	- -
Deferred tax expense (Note 8)	10,491	1,055
Income tax expense recognized in statement
of profit or loss	10,491	1,055

6. Restricted Cash

Current

As of March 31, 2015, the Company had a current asset of \$55,082,000 (December 31, 2014: \$55,478,000) 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 March 31, 2015 and December 31, 2014, the Company had \$52,000 of cash held as deposits for work commitment guarantees contained in exploration contracts in Alaska in the United States.

At March 31, 2015, the Company had \$8,138,000 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 months ended March 31, 2015 and 2014

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

7. Inventory

	March 31,	December 31,
	2015	2014
Inventory at cost	1,346	2,488
Write-down of inventory	(197)	(1,545)
Total	1,149	943

Inventory entirely relates to crude oil inventory in the storage tank at March 31, 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 March 31, 2015 and December 31, 2014 inventory was recorded at selling price less costs to sell.

8. Deferred Tax Asset

As at March 31, 2015 the deferred tax asset has been decreased to \$43.7 million from \$54.2 million at December 31, 2014. This decrease is a direct result of a reduction in taxation rates of oil and gas companies in the UK from 62% to 50% effective January 1, 2015. Movements of the Company's temporary differences for the 3 month period ended March 31, 2015 are as follows:

54,200
(10,491)
43,709

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.

• 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

Iona Energy Inc. Notes to the Condensed Consolidated Financial Statements - continued

For the three months ended March 31, 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

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 March 31, 2015:

	Level 1	Level 2	Level 3	Total Fair Value
Current assets
Derivative financial assets	-	5,597	-	5,597
Current liabilities
Derivative financial instrument liabilities	-	-	-	-
Non-current liabilities
Derivative financial instrument liabilities	-	9,667	-	9,667

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

	Three Months	Three Months
	Ended	Ended
	March 31, 2015	March 31 2014
Unrealized gain on commodity hedges	9,133	288
Realized gain on commodity hedges	3,614	-
Total gain on commodity hedges	12,747	288

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 March 31, 2015, the fair value of the Bonds is \$84.5 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 months ended March 31, 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 March 31, 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	Q2	90,017	92.75	90,017	80.00
	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	-	-
		1,894,986		244,986

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. 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 arises when a party to a financial instrument will be unable to discharge cash, cash equivalents, restricted cash and accounts receivable. 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 March 31, 2015, and did not provide for any doubtful accounts nor was it required to write-off any receivables during the period ended March 31, 2015 or 2014.

Notes to the Condensed Consolidated Financial Statements - continued For the three months ended March 31, 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 Canadian dollar. The Company is exposed to foreign currency fluctuations as it holds cash and incurs expenditures in property and equipment in foreign currencies. The Company incurs expenditures in Pound sterling, Euros, 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 March 31, 2015, March 31, 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 March 31, 2015 would have impacted the comprehensive loss of the Company for the three month period ended March 31, 2015 by approximately \$4,000 (three months ended March 31, 2014 – \$87,000).

In addition at March 31, 2015, the Company held approximately \$4,003,000 (£2,696,000) (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 March 31, 2015 would impact the comprehensive loss of the Company for the three month period ended March 31, 2015 by approximately \$40,000 (three months ended March 31, 2014: \$160,000).

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 initiated a review process to consider all options to (i) ensure the business is fully funded to first oil from Orlando, and/or (ii) enable the refinancing of the Bonds. 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	199
As at March 31, 2015	41,133

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

During the period, the Company expensed \$Nil (2014: \$199,000) of pre-license expenditures.

Iona Energy Inc. Notes to the Condensed Consolidated Financial Statements - continued For the three months ended March 31, 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

The current Kells license agreement requires submission of a field development plan by August 2015. This will not be achieved and Iona is currently in discussions with the Department of Energy and Climate Change ("DECC") to seek an extension to the license. Whilst there is a risk that DECC may not be willing to extend the license management remain confident that such an extension will be provided and hence continue to hold the associated costs as capitalized E&E assets.

West Wick is classified as a Fallow B Rescued license. Following discussions with DECC during May 2015, Iona now has until the end of October 2015 by which point it must 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.

Upon the approval by DECC 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 (see Note 14).

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	4,912	16	4,928
At March 31, 2015	484,956	966	485,922
Depletion, depreciation, amortization and impairment
At December 31, 2014	230,762	230	230,992
Charge for the period	6,054	48	6,102
At March 31, 2015	236,816	278	237,094
Exchange differences	497	-	497
Carrying value at December 31, 2014	249,779	720	250,499
Carrying value at March 31, 2015	248,637	688	249,325

Included in the above is an amount of \$136.0 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 properties during the period total \$0.2 million (2014: \$Nil), at a weighted average interest rate of 12.02% (2014: Nil).

Notes to the Condensed Consolidated Financial Statements - continued For the three months ended March 31, 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

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 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%

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 Company determined that the warrants issued 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 March 31, 2015 was 12.02%.

Notes to the Condensed Consolidated Financial Statements - continued For the three months ended March 31, 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 at December 31, 2014	267,493
Amortization of discount and transaction costs	1,248
Paid in kind interest	13,431
Amendment Fee (Warrants)	(1,240)
As at March 31, 2015	280,932

As at March 31, 2015 the fair value of the Bonds was \$84.5 million (2014: \$212 million). The Bonds mature on September 30, 2018. The Company reviewed the terms of the Bonds at issuance and determined that certain prepayment options were an embedded derivative. The fair value of the embedded derivative at inception was \$1,146,000. At March 31, 2015 the derivative was valued at \$Nil (2014: \$262,000) and will be fair valued at each subsequent reporting period. The fair value of the derivative is the residual of the value of similar debt without the derivative less the current fair value of the Bonds. The embedded derivative is presented separately from the Bonds in statement of financial position as a current derivative instrument.

13. Decommissioning Provision

Balance December 31, 2014	36,158
Exchange movements	(1,720)
Accretion	108
Balance March 31, 2015	34,546

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. A further update on decommissioning cost estimates is expected from the Huntington operator during 2015.

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 3 years.

At December 31, 2014, in conjunction with the determination of the commercial viability and technical feasibility of the Orlando project, the Company determined that the criteria for recognition of a provision for these amounts had been met on the basis that it was considered probable that a cash outflow would be required to settle the contractual obligation. 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 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. The accretion charge for the three months ended March 31, 2015 was \$92,000 (2014: \$Nil).

Notes to the Condensed Consolidated Financial Statements - continued For the three months ended March 31, 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

Balance December 31, 2014	27,743
Accretion	92
Balance March 31, 2015	27,835

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 March 31, 2015 had the following common shares, warrants and share options outstanding:

(a) Issued

	March 31, 2015
Common shares	Shares	Amounts
Opening balance, December 31, 2014	370,580,868	178,717
Balance End of Period	370,580,868	178,717

(b) Warrants

	March 31, 2015
	Warrants	Amounts
Warrants
Opening balance, December 31, 2014	3,750,000
Balance End of Period	3,750,000

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

	December 31, 2014
Fair value at grant date:	CAD\$ 0.15
Exercise price	CAD\$ 0.48
Dividend yield	Nil
Expected volatility	49%
Risk-free rate	1.42%
Expected life	5 years

Notes to the Condensed Consolidated Financial Statements - continued For the three months ended March 31, 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

(c) Stock options

During the period \$160,000 (2014: \$38,000) of share based compensation expense was included in general and administrative expenses.

Stock Options	Number of Options	Weighted Average Exercise Price CAD\$
Opening balance, December 31, 2014	29,597,500	\$0.56
Granted	-	-
Exercised	-	-
Forfeited	(2,250,000)	\$0.57
Ending balance, March 31, 2015	27,347,500	\$0.55
Exercisable, end of period	19,582,500	\$0.56

Date of Grant	Number of Options Outstanding	Exercise Price CAD\$	Weighted Average Remaining Contractual Life	Date of Expiry	Number Exercisable March 31, 2015
May 31, 2011	6,900,000	\$0.60	0.42 years	May 31, 2015	6,900,000
April 12, 2012	10,150,000	\$0.57	2.28 years	April 12, 2017	7,612,500
March 5, 2013	4,410,000	\$0.63	3.18 years	March 5, 2018	3,307,500
October 23, 2013	600,000	\$0.63	3.81 years	October 23, 2018	300,000
April 30, 2014	412,500	\$0.54	4.33 years	April 30, 2019	150,000
July 1, 2014	375,000	\$0.49	4.47 years	June 19, 2019	187,500
September 1, 2014	4,500,000	\$0.40	3.67 years	September 1, 2019	1,125,000
	27,347,500				19,582,500

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:

	March 31, 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.

Iona Energy Inc. Notes to the Condensed Consolidated Financial Statements - continued For the three months ended March 31, 2015 and 2014

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

16. Related Party Transactions

During the three months ended March 31, 2015, the Company was charged \$36,000 (2014: \$50,000), in legal fees of which \$Nil (2014: \$Nil) related to share issuance costs by a law firm where a director of the Company is a partner, of which \$13,000 is included in accounts payable and accrued liabilities as at March 31, 2015 and \$31,000 as at March 31, 2015.

Included in accounts receivable is \$94,612 (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 \$480,000 (CAD\$500,000) bearing interest at 3.25% with two members of senior management. These notes are secured by 1,250,000 outstanding common shares and 1,250,000 warrants issued on August 29, 2014. At March 31, 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.

17. Commitments and Contingencies

Based on management's best estimate, the Company has the following contractual obligations:

	March 31, 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	4,034	451	1,354	903	1,326
Equipment leases	32,745	11,201	21,544	-	-
Drilling, completion, facility construction	34,747	19,029	15,718	-	-
Total UK Segment Total Contractual Obligations	71,526	30,681	38,616	903	1,326
	71,730	30,698	38,684	954	1,394

During the period \$115,000 (2014: \$22,000) of office rent was charged through general and administrative expense and \$2,946,000 (2014: \$2,433,000) 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 months ended March 31, 2015 and 2014

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

18. 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 March 31, 2015, the Company had net assets of \$62.1 million, working capital of \$72.7 million and commitments due in the next 12 months as further detailed in Note 17.

There can be no guarantee that bondholders will vote in favour of either the Proposal or the Super Senior Funding discussed in the "Going Concern" section of Note 2. If neither the Proposal nor the Super Senior Funding are supported by bondholders then the Company will likely default under the terms of the Bonds during 2015. In an event of default, Bondholders could require immediate repayment of the Bonds 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.

19. Subsequent Event

On April 17, 2015, the Company executed 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.

On May 8, 2015 Iona issued an aggregate of 37,058,086 common share purchase warrants of the Company (the "Warrants") pro-rata to the bondholders as a waiver fee relating to the Bond amendments. Each Warrant will entitle the holder thereof to purchase one common shares in the capital of the Company at a price of \$0.05 per share, until September 27, 2018.

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