Orca Exploration announces Q1 2014 results

TSX-V: ORC.A, ORC.B

TORTOLA, British Virgin Islands, May 29, 2014 /CNW/ - Orca Exploration Group Inc. ("Orca" or "the Company") announces its results for the quarter ended 31 March 2014.

• Orca operated its Tanzania Songo Songo gas field in the first quarter of 2014 near its productive capacity delivering Additional Gas sales volumes averaging 57.4 MMcfd, a decrease of 7% over the same period in 2013 (Q1 2013: 61.6 MMcfd) and a decrease of 4% over Q4 2013 (60.1 MMcfd). Overall production of Protected Gas and Additional Gas was down 2% over Q1 2013 at 94 MMcfd (Q1 2013: 96 MMcfd). Current average production is approximately 94 MMcfd with current volumes down to approximately 82 MMcfd due to seasonally high hydro usage by TANESCO.
  
  
• The situation with respect to the outstanding accounts receivable from TANESCO remains urgent. 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 will need additional funding for its ongoing operations by the end of the 2014 fiscal year.
  
  
• Working capital was US$19.1 million at 31 March 2014, down 65% over Q1 2013 (US$54.8 million), a result of reclassifying US$59.3 million (prior to discount) of TANESCO debt as a long-term receivable. As at 31 March 2014, TANESCO owed the Company US$68.6 million of which US$63.9 million was in arrears.
  
  
• TANESCO currently owes the Company US$60.9 million, of which US$57.6 million is in arrears. During the quarter, the Company served notice to TANESCO and is actively pursuing 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.
  
  
• TANESCO has made some effort to arrest the growth of arrears. The Tanzania Ministry of Energy and Minerals ("MEM"), which oversees TANESCO, directed the state utility to seek to establish a regular basis of payments to its creditors given the increased cash flow from higher power tariffs which came into effect in January 2014. TANESCO has stated an intention to pay TZsh 3 billion (US$1.8 million) weekly. Management is currently negotiating a formalized arrangement with TANESCO to repay the arrears and ensure payment for ongoing gas deliveries remains current.
  
  
• Q1 earnings were US$1.6 million or US$0.04 per share diluted, down 47% from the prior year period (Q1 2013: US$2.9 million or US$0.08 per share) and compared with a loss of US$3.9 million or US$0.11 per share in Q4 2013, again reflecting the cost of carrying the TANESCO receivable and provisioning a further US$2.6 million (Q4 2013: US$2.2 million) against doubtful debts, primarily Songas.
  
  
• Average gas prices were up 2% in Q1 to US$4.55/mcf over the prior year period (Q1 2013: US$4.45/mcf), Industrial gas prices were up 4% in Q1 to US$8.11/mcf (Q1 2013: US$7.78/mcf) and down 3% from Q4 2013 (US$8.38/mcf) from changes in the sales mix. Average Power sector gas prices decreased 1% over the prior year period to US$3.52/mcf (Q1 2013: US$3.55/mcf) and down 4% compared to the Q4 2013 price of US$3.68/mcf, a result of a reduced take at higher marginal prices.
  
  
• Gross revenue for the quarter was US$23.9 million, down 3% from the prior year period (Q1 2013: US$24.6 million), with the Company's share of revenue down 5% from US$12.7 million to US$12.1 million. Cost Pool recoveries contributing to operating revenue remained low at US$2.3 million (Q1 2013: US$3.6 million) due to minimal capital spending during the quarter.
  
  
• Funds flow from operating activities was down 20% to US$7.1 million or US$0.20 per share diluted (Q1 2013: US$8.9 million or US$0.25 per share), a result of lower net revenues.
  
  
• As at 31 March 2014, the Company had US$31.1 million in cash (31 December 2013: US$32.6 million) and no debt, more than double the cash balances of the prior year. Notwithstanding the stronger cash position, the continued TANESCO and Songas non-payment still threatens the Company's viability and the Company has maintained a going concern note in its Q1 2014 Interim Consolidated Financial Statements. The Company currently has US$40 million in cash and no debt.
  
  
• During the quarter, Company ended negotiations on potential amendments to the Songo Songo Production Sharing Agreement (the "PSA") and on Government Negotiating Team issues having obtained a full retraction by the Tanzania Petroleum Development Corporation ("TPDC") of the alleged over-recovery of US$21 million in Cost Pools and TPDC having confirmed that the matter was now closed. The claim was the cornerstone of Parliament's 2011 resolution advising the Government that the Company should repay the monies and that the PSA be terminated. The Company continues to use the dispute resolution mechanisms in its agreements to address any and all pertinent issues going forward.
  
  
• Establishing commercial terms for future incremental gas sales remains a key condition to the Company's commitment to Songo Songo development - again there were no substantive developments in negotiations during the quarter. 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 continued planning the full development of Songo Songo to reach 190 MMcfd deliverability by mid-2015, and commenced detailed engineering work on potential workovers of two of the more prolific producing wells currently suspended, SS-5 and SS-9. The Company continues to work with the International Finance Corporation of the World Bank Group to finance the development programme. All development work remains contingent upon (i) satisfactory resolution of TANESCO arrears; (ii) acceptable commercial terms for future gas sales to TPDC; and (iii) payment guarantees for future gas deliveries to TPDC.
  
  
• The Tanzania National Natural Gas Infrastructure Project ("NNGIP") made significant progress, as reported by TPDC during 2013, with the pipeline currently 72% complete and gas processing facilities 58% complete. Expected onstream date remains mid-2015.

Financial and Operating Highlights

Condensed Consolidated Interim Statement of Comprehensive Income (Unaudited)

ORCA EXPLORATION GROUP INC.

See accompanying notes to the condensed consolidated interim financial statements.

Condensed Consolidated Interim Statement of Financial Position (Unaudited)

ORCA EXPLORATION GROUP INC. 

See accompanying notes to the condensed consolidated interim financial statements.

Condensed Consolidated Interim Statement of Cash Flows (Unaudited)

ORCA EXPLORATION GROUP INC.

See accompanying notes to the condensed consolidated interim financial statements.

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

ORCA EXPLORATION GROUP INC.

See accompanying notes to the condensed consolidated interim financial statements.

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 quarter ended 31 March 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 by year end for the Company's ongoing operations if the Company is unable to collect the TANESCO receivables; 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 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.