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Orca Exploration announces Q2 2014 results

TSX-V: ORC.A, ORC.B

TORTOLA, British Virgin Islands, Aug. 27, 2014 /CNW/ - Orca Exploration Group Inc. ("Orca" or "the Company") announces its results for the quarter and six months ended 30 June 2014.

Highlights


  • The highest seasonal rainfall in several years allowed TANESCO to increase the use of hydro power in Tanzania and reduced nominations for the Company's Songo Songo gas production during the second quarter of 2014. Total field production averaged 84.2 million standard cubic feet per day ("MMcfd") down 11% from the prior year period, and down 10% from 93.9 MMcfd in Q1 2014. Additional Gas sales volumes averaged 50.0 MMcfd, a decrease of 14% over the same period in 2013 (Q2 2013: 58.4 MMcfd) and a decrease of 13% over Q1 2014 (57.4 MMcfd).
  • The situation with respect to the outstanding accounts receivable from TANESCO began to stabilise with regular weekly payments which commenced during the quarter. The Company will continue to draw attention to the going concern issue until discernable progress has been made in reducing arrears. In the event that the Company does not collect from TANESCO the balance of the receivables and TANESCO continues to be unable to pay the Company for subsequent gas deliveries, the Company may be unable to undertake the level of capital expenditure required to increase well deliverability to the expansion target of 190 MMcfd.
  • Working capital was US$37.2 million at 30 June 2014, up 95% from 31 March 2014 (US$19.1 million) and up 34% over 31 December 2013 (US$27.8 million), a result of cash received from TANESCO against the long-term portion of the receivable. As at 30 June 2014, TANESCO owed the Company US$63.8 million of which US$53.4 million was in arrears.
  • TANESCO currently owes the Company US$50.4 million, of which US$45.2 million is in arrears. The Company continues to review legal and contractual options available to collect the arrears and arrest the increase in TANESCO receivables, including but not limited to the suspension of gas deliveries to TANESCO.
  • Q2 income was US$6.5 million or US$0.18 per share diluted, as opposed to a loss in the prior year period (Q2 2013: US$6.6 million loss or US$0.19 per share) and compared with income of US$1.6 million or US$0.04 per share in Q1 2014, with increased net revenues offsetting the cost of carrying the TANESCO receivable.
  • Average gas prices were up 7% in Q2 to US$4.94/mcf over the prior year period (Q2 2013: US$4.62/mcf). Industrial gas prices were up 8% in Q2 to US$9.27/mcf (Q2 2013: US$8.60/mcf) and up 14% from Q1 2014 (US$8.11/mcf) from changes in the sales mix. Average Power sector gas prices increased 1% over the prior year period to US$3.65/mcf (Q2 2013: US$3.63/mcf) and were up 4% compared to the Q1 2014 price of US$3.52/mcf. The increase over Q1 2014 was the result of a greater proportion of sales volumes being priced at the higher excess gas price, as volumes in excess of 36 MMcfd are sold at a 150% premium to the base price.
  • Gross revenue was US$21.0 million, up 1% from the prior year period (Q2 2013: US$20.7 million), with the Company's share of revenue up 13% to US$13.3 million from US$11.8 million in the prior year period. The recovery of prior years' downstream costs together with an adjustment for agreed non-recoverable costs resulted in the recognition of a further US$3.0 million increase in the Company share of revenue during the quarter. There was no capital spending during the quarter.
  • Funds flow from operating activities was up 26% to US$13.3 million or US$0.37 per share diluted (Q2 2013: US$10.5 million or US$0.30 per share) and up 87% from Q1 2014 (US$7.1 million or US$0.20 per share), a result of higher net revenues.
  • As at 30 June 2014, the Company had US$38.7 million in cash (31 December 2013: US$32.6 million) and no debt, more than double the cash balances of the prior year period. The Company currently has US$60.2 million in cash and no debt.
  • During the quarter, Company continued to advance its efforts to resolve the US$34 million Cost Pool dispute with TPDC. An international auditing firm appointed by the Tanzania Controller Auditor General (CAG) to review the costs under dispute has completed its work and reported back to TPDC. The Company has reviewed the work and agreed US$1.0 million in disputed costs as non-recoverable and has further agreed with TPDC to appoint a third party expert to provide a non-binding opinion on the fairness of the remaining costs under dispute.
  • Discussions with TPDC and Ministry of Energy and Minerals on commercials terms for future incremental gas sales have ground to a halt with no engagement from either party since the end of Q1 2014. Commercial terms remain a key condition to the Company's commitment to Songo Songo development. The Company has recently served notice that in the absence of an agreement in the near future, the Company intends to pursue its rights under the PSA to develop other markets for Songo Songo gas.
  • Despite the stalled efforts to reach agreement on commercial terms, the Company continues planning the full development of Songo Songo to reach 190 MMcfd deliverability by mid-2015, and advanced engineering on the workovers of wells SS-5 and SS-9, which are currently suspended. The Company continues to work with the International Finance Corporation of the World Bank Group to finance the development programme. Completion of the full development programme remains contingent upon (i) satisfactory resolution of TANESCO arrears; (ii) acceptable commercial terms; and (iii) payment guarantees for future gas deliveries to TANESCO.
  • The Tanzania National Natural Gas Infrastructure Project ("NNGIP") made significant progress, as reported by TPDC during 2013, with the pipeline currently 80% complete and gas processing facilities 37% complete. Expected onstream date remains mid-2015.
  • In response to speculation regarding a potential sale of the Company or a significant transaction, in mid-July Orca issued a press release advising that the Company was in discussions with a number of third parties which have made unsolicited approaches to the Company relating to the sale of the Company, a significant asset disposal, strategic investment or other transaction involving the Company. As at the date hereof, the Company has nothing to report.

Financial and Operating Highlights





THREE MONTHS ENDED/AS AT

Three months ended/As at

30 June 2014

30 June 2013

Percentage
Change

31 March 2014

Percentage
Change

Financial (US$000 except where otherwise stated)






Revenue

19,074

11,996

59

13,698

39

Profit/(Loss) before tax

10,387

(8,509)

n/m

3,246

220

Operating netback (US$/mcf)

3.03

2.10

44

2.03

49

Cash

38,694

18,752

106

31,058

25

Working capital (1)

37,226

22,527

65

19,060

95

Shareholders' equity

128,528

122,068

5

121,851

5

Total comprehensive income/(loss)

6,703

(6,817)

n/m

1,573

326

       per  share - basic  (US$)

0.19

(0.19)

n/m

0.05

280

       per  share - diluted (US$)

0.18

(0.19)

n/m

0.04

350

Funds flow from operating activities (2)

13,266

10,546

26

7,104

87

       per share from operating activities  - basic  (US$)

0.38

0.30

27

0.20

90

       per share from operating activities  - diluted (US$)

0.37

0.30

23

0.20

85

Cash flows from operating activities

7,255

8,268

(12)

660

1,025

      per share - basic (US$)

0.21

0.23

(9)

0.02

950

      per share - diluted (US$)

0.20

0.23

(9)

0.02

900

Outstanding Shares ('000)






Class A shares

1,751

1,751

-

1,751

-

Class B shares

33,072

32,892

5

33,072

-

Options

1,742

1,922

(9)

1,742

-

Operating






Additional Gas sold (MMcf) - Industrial

1,046

1,067

(2)

1,164

(10)

Additional Gas sold (MMcf) - Power

3,503

4,250

(18)

4,008

(13)

Additional Gas sold (MMcfd) - Industrial

11.5

11.7

(2)

12.9

(11)

Additional Gas sold (MMcfd) - Power

38.5

46.7

(18)

44.5

(13)

Additional Gas sold (MMcfd)

50.0

58.4

(14)

57.4

(13)

Average price per mcf (US$) - Industrial

9.27

8.60

8

8.11

14

Average price per mcf (US$) - Power

3.65

3.63

1

3.52

4

1.

 Working capital as at 30 June 2014 includes a TANESCO short-term receivable of US$10.1 million (31 December 2013: US$9.6 million). Given
the payment pattern, the TANESCO receivables in excess of 60 days which total US$53.7 million (31 December 2013: US$47.0 million) have
been classified as long-term receivables and discounted by US$
17.1 million. Total long and short-term TANESCO receivables as at 30 June 2014
were US$63.8 million prior to discounting. Subsequent to the quarter end, TANESCO paid US$18.6 million, and as at 27 August 2014 the
TANESCO balance was US$50.4 million of which arrears total US$45.2 million.



 

Condensed Consolidated Interim Statement of Comprehensive Income/(Loss) (Unaudited)

ORCA EXPLORATION GROUP INC.










Three months ended

Six months ended

US$'000 except per share amounts


30 June 2014

30 June 2013

30 June 2014

30 June 2013







Revenue


19,074

11,996

32,772

25,193

Expenses






Production and distribution expenses


(1,386)

(620)

(2,646)

(1,414)

Depletion expense


(3,214)

(2,612)

(6,777)

(5,335)



14,474

8,764

23,349

18,444

General and administrative expenses


(3,357)

(3,430)

(7,151)

(6,960)

Finance income


635

1,865

1,282

1,865

Finance costs


(1,365)

(15,708)

(3,847)

(17,198)

Profit/(loss) before tax


10,387

(8,509)

13,633

(3,849)

Income taxes


(3,860)

1,943

(5,520)

57

Profit/(loss) after tax


6,527

(6,566)

8,113

(3,792)

Foreign currency translation gain/(loss) from
foreign operations


176

(251)

163

(75)

Total comprehensive income/(loss) for the period


6,703

(6,817)

8,276

(3,867)







Earnings per share






Basic (US$)


0.19

(0.19)

0.23

(0.11)

Diluted (US$)


0.18

(0.19)

0.23

(0.11)

 

                               

Condensed Consolidated Interim Statement of Financial Position (Unaudited)

ORCA EXPLORATION GROUP INC.






As at

US$'000


30 June 2014

31 Dec 2013

ASSETS




Current Assets




Cash


38,694

32,588

Trade and other receivables


41,259

37,215

Tax receivable


14,955

14,585

Prepayments


576

281



95,484

84,669

Non-Current Assets




Long-term trade receivable


36,580

29,911

Exploration and evaluation assets


5,564

5,564

Property, plant and equipment


84,006

90,832



126,150

126,307

Total Assets 


221,634

210,976





EQUITY AND LIABILITIES




Current Liabilities




Trade and other payables


58,073

53,296

Bank loan


-

1,659

Tax payable


185

1,958



58,258

56,913

Non-Current Liabilities




Deferred income taxes


12,292

12,132

Deferred additional profits tax


22,556

21,679



34,848

33,811

 Total Liabilities


93,106

90,724





Equity




Capital stock


85,428

85,428

Contributed surplus


6,482

6,482

Accumulated other comprehensive loss


(140)

(303)

Accumulated income


36,758

28,645



128,528

120,252

Total Equity and Liabilities 


221,634

210,976

 


 


Condensed Consolidated Interim Statement of Cash Flows (Unaudited)

ORCA EXPLORATION GROUP INC.










Three months ended

Six months ended

US$'000


30 June 2014

30 June 2013

30 June 2014

30 June 2013

OPERATING ACTIVITIES






Profit/(loss) after tax


6,527

(6,566)

8,113

(3,792)

Adjustment for:






    Depletion and depreciation


3,374

2,693

7,089

5,502

    Disposal of fixtures & fittings


7

-

7

-

    Provision for doubtful debt


635

7,100

3,206

7,100

    Discount on long-term receivable


-

7,900

-

7,900

    Stock-based compensation


85

(44)

362

(315)

    Deferred income taxes


1,127

(4,381)

160

(4,967)

    Deferred additional profits tax


1,156

3,390

877

6,425

    Interest expense


-

-

24

-

    Unrealised loss on foreign exchange


355

454

532

1,390

 Funds flow from operating activities


13,266

10,546

20,370

19,243

(Increase)/decrease in trade and other receivables


(6,236)

29,597

(6,860)

8,669

(Increase)/decrease in tax receivable


(591)

86

(370)

407

Decrease/(increase) in prepayments


136

(221)

(295)

(183)

(Decrease)/increase in trade and other payables


(4,378)

(3,138)

3,513

4,254

Decrease in tax payable


(554)

(1,623)

(1,773)

(2,892)

Decrease/(increase) in long-term receivable


5,612

(26,979)

(6,669)

(26,979)

Cash flows from operating activities


7,255

8,268

7,916

2,519

INVESTING ACTIVITIES






Exploration and evaluation expenditures


-

-

-

(2)

Property, plant and equipment expenditures


213

(138)

(270)

(406)

Cash from/(used) in investing activities


213

(138)

(270)

(408)

FROM FINANCING ACTIVITIES






Bank loan proceeds


-

-

-

4,000

Bank loan repayments


-

(2,455)

(1,659)

(3,239)

Interest paid


-

-

(24)

-

Cash from/(used in) financing activities


-

(2,455)

(1,683)

761

Increase in cash


7,468

5,675

5,963

2,872

Cash at the beginning of the period


31,058

13,421

32,588

16,047

Effect of change in foreign exchange on cash in hand


168

(344)

143

(167)

Cash at the end of the period


38,694

18,752

38,694

18,752

 

 

Condensed Consolidated Interim Statement of Changes in Shareholders' Equity (Unaudited)

ORCA EXPLORATION GROUP INC.












US$'000

Capital stock

Contributed
surplus

Cumulative
translation
adjustment

Accumulated
income

Total







Balance as at 1 January 2014

85,428

6,482

(303)

28,645

120,252

Foreign currency translation adjustment on foreign operations

-

-

163

-

163

Profit after tax for the period

-

-

-

8,113

8,113

Balance as at 30 June 2014

85,428

6,482

(140)

36,758

128,528







US$'000

Capital stock

Contributed
surplus

Cumulative
translation
adjustment

Accumulated
income

Total

Balance as at 1 January 2013

84,983

6,753

89

34,110

125,935

Foreign currency translation adjustment on foreign operations

-

-

(75)

-

(75)

Loss after tax for the period

-

-

-

(3,792)

(3,792)

Balance as at 30 June 2013

84,983

6,753

14

30,318

122,068

 

 

Orca Exploration Group Inc.

Orca Exploration Group Inc. is an international public company engaged in natural gas exploration, development and supply in Tanzania through the wholly-owned subsidiary PanAfrican Energy Tanzania Limited, as well as oil and gas appraisal in Italy. Orca trades on the TSX Venture Exchange under the trading symbols ORC.B and ORC.A.

The complete unaudited consolidated financial statements and notes and management's discussion & analysis of the Company for the three and six months ended 30 June 2014 may be found on the Company's website at www.orcaexploration.com or on the Company's profile on SEDAR at www.sedar.com.

Neither the TSX Venture Exchange nor its Regulation Service Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Forward Looking Statements

This press release contains forward-looking statements. More particularly, this press release contains statements concerning, but not limited to: repayment of the TANESCO receivables; the need for additional funding for the Company's ongoing operations, including the capital expenditures required to increase well deliverability, if the Company is unable to collect the TANESCO receivables; the appointment of a third party expert to provide a non-binding  opinion on the Cost Pool dispute; the actions taken and to be taken by the Company to collect the TANESCO receivables; the Company's viability and its ability to meet its obligations as they come due; status of negotiations with the TPDC regarding a sales agreement for incremental gas volumes and the Company's plans if an agreement is not reached in the near future; status of execution of a full field development plan for Songo Songo, including the anticipated gas sales volumes and the timing of delivery thereof, the funding of the development plan, and the contingencies related to the development work; the expected onstream date for the NNGIP; and the Company's strategic plans. Although management believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant business, economic, operational, competitive, political and social uncertainties and contingencies. As a consequence, actual results may differ materially from those anticipated in the forward looking statements. 

These forward-looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond Orca's control, and many factors could cause Orca's actual results to differ materially from those expressed or implied in any forward-looking statements made by Orca, including, but not limited to: failure to receive payments from TANESCO; failure to obtain adequate funding to meet the Company's obligations as they come due; risk that the contingencies related to the development work for the full field development plan for Songo Songo are not satisfied; risk that the expected onstream  date for the NNGIP is delayed; failure to obtain funding for full field development plan for Songo Songo; risk that the Company will be required to pay additional taxes and penalties; the risk that the Cost Pool dispute will not be resolved in favour of Orca; the impact of general economic conditions in the areas in which Orca operates; civil unrest; industry conditions; changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; increased competition; the lack of availability of qualified personnel or management; fluctuations in commodity prices; foreign exchange or interest rates; stock market volatility; competition for, among other things, capital, drilling equipment and skilled personnel;  failure to obtain required equipment for drilling; delays in drilling plans; failure to obtain expected results from drilling of wells; changes in laws; imprecision in reserve estimates; the production and growth potential of the Company's assets; obtaining required approvals of regulatory authorities; risks associated with negotiating with foreign governments; inability to access sufficient capital; failure to successfully negotiate agreements; and risk that the Company will not be able to fulfill its obligations. In addition there are risks and uncertainties associated with oil and gas operations, therefore Orca's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking estimates and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking estimates will transpire or occur, or if any of them do so, what benefits that Orca will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive

Such forward-looking statements are based on certain assumptions made by Orca in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors Orca believes are appropriate in the circumstances, including, but are not limited to: that the Company will have sufficient cash flow, debt or equity sources or other financial resources required to fund its capital and operating expenditures and requirements as needed; that the Company will have adequate funding to continue operations; that the Company will successfully negotiate agreements; receipt of required regulatory approvals; the ability of Orca to add production at a consistent rate; infrastructure capacity; commodity prices will not deteriorate significantly; the ability of Orca to obtain equipment in a timely manner to carry out exploration, development and exploitation activities; future capital expenditures; availability of skilled labour; timing and amount of capital expenditures; uninterrupted access to infrastructure; the impact of increasing competition; conditions in general economic and financial markets; effects of regulation by governmental agencies; that the Company will obtain funding for full field development plan for Songo Songo; current or, where applicable, proposed industry conditions, laws and regulations will continue in effect or as anticipated as described herein; and other matters.

The forward-looking statements contained in this press release are made as of the date hereof and Orca undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

SOURCE Orca Exploration Group Inc.

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