May 30, 2011 (Canada NewsWire Group) --
TSX-V: ORC.A, ORC.B
TORTOLA, British Virgin Islands, May 30, 2011 /CNW/ - Orca Exploration Group Inc ("Orca Exploration" or the "Company") announces its results for the quarter ended 31 March 2011.
Highlights
- Increased funds flow from operating activities by 9% to US$4.9 million (Q1 2010: US$4.5 million).
- Increased sales of Additional Gas by 6% to 3,344 MMcf or 37.1 MMcfd (Q1 2010: 3,141 MMcf or 34.9 MMcfd).
- Increased working capital by 6% during the quarter to US$55.8 million (US$52.4 million at 31 December 2010).
- Continued to strengthen Orca's management team by recruiting a new chief operating officer.
- Negotiated a Re-rating Agreement with Songas Limited to increase the Songo Songo gas processing infrastructure capacity from 90 MMcfd to 110 MMcfd.
- Connected the SS-10 well to the gas processing plant adding 41 MMcfd of deliverability.
Financial and Operating Highlights
| 31-Mar | 31-Mar | ||
| THREE MONTHS ENDED OR AS AT | 2011 | 2010 | Change |
| Financial (US$ except where otherwise stated) | |||
| Revenue | 9,640 | 8,259 | 17% |
| Profit before taxation | 4,030 | 3,273 | 23% |
| Operating netback (US$/mcf) | 2.16 | 2.19 | (1%) |
| Cash and cash equivalents | 47,776 | 15,517 | 208% |
| Working capital | 55,759 | 20,891 | 167% |
| Shareholders' equity | 100,573 | 70,955 | 42% |
| Earnings per share - basic (US$) | 0.07 | 0.07 | 0% |
| Earnings per share - diluted (US$) | 0.07 | 0.06 | 17% |
| Funds flow from operating activities | 4,947 | 4,540 | 9% |
| Funds flow per share from operating activities - basic (US$) | 0.14 | 0.15 | (7%) |
| Funds flow per share from operating activities - diluted (US$) | 0.14 | 0.15 | (7%) |
| Net cash flows from operating activities | 3,496 | 1,518 | 130% |
| Net cash flows per share from operating activities - basic (US$) | 0.10 | 0.05 | 100% |
| Net cash flows per share from operating activities - diluted (US$) | 0.10 | 0.05 | 100% |
| Outstanding Shares ('000) | |||
| Class A shares | 1,751 | 1,751 | 0% |
| Class B shares | 32,939 | 27,743 | 19% |
| Options | 2,557 | 2,797 | (9%) |
| Additional Gas sold (MMcf) - industrial | 550 | 485 | 13% |
| Additional Gas sold (MMcf) - power | 2,794 | 2,656 | 5% |
| Additional Gas sold (MMcfd) - industrial | 6.1 | 5.4 | 13% |
| Additional Gas sold (MMcfd) - power | 31.0 | 29.5 | 5% |
| Average price per mcf (US$) - industrial | 9.42 | 9.32 | 1% |
| Average price per mcf (US$) - power | 2.62 | 2.56 | 2% |
Chairman & CEO's Letter to Shareholders
Orca Exploration had a profitable first quarter recording gas sales of 37.1 MMcfd, an increase of 6% compared with the same period in 2010. The Company generated funds flow from operating activities of US$4.9 million (Q1 2010: US$4.5 million).
Management continues to take steps that will move Orca to the next level:
- Orca continues to strengthen its senior management team. We have recruited Dale Rollins, as the Company's Chief Operating Officer (COO). He will join the Company in June bringing significant international experience including several years as Deputy Managing Director for Shell's petroleum operations in Nigeria where he was responsible for 25 production operations.
- The Company is on track to drill the La Tosca gas exploration well in the Po Valley Basin in Q4 2011 as the first step in delineating the prospectivity of the Longastrino block.
- Orca has taken action to address the impact of offshore well corrosion concerns. A drilling team has been established to drill a new onshore deviated well (SS-A) and upgrade SS-10 to increase deliverability.
- The same team is in discussions with several jack up rig operators to drill the high potential Songo Songo West (SSW) exploration prospect in 2012.
Expanding infrastructure
In Q1 2011, there were positive developments with the Songas Expansion Project that will see the capacity of the infrastructure increase to 140 MMcfd. Songas reached a provisional agreement with the energy regulator, EWURA, on the tariff methodology that should be applied. Songas will now push ahead with detailed design work, the raising of debt and equity financing and the tendering for an engineering and procurement contractor. Orca will be actively involved in this process both as operator of the gas processing plant and principal user of the infrastructure. Once this process has been concluded there will be a final submission to EWURA to determine the tariff that will apply. The target is to reach financial close by the end of 2011.
During Q1 2011, the Company negotiated a Re-rating Agreement with TANESCO and Songas to run the gas processing plant at levels of up to 110 MMcfd. The agreement is expected to remain in force for the period until the Songas Expansion Project is operational. If this agreement comes into force, the Company will effectively pay an additional tariff of US$0.30/mcf for sales between 70 MMcfd and 90 MMcfd and US$0.40/mcf for volumes above 90 MMcfd in addition to the tariff of US$0.59/mcf payable to Songas as set by the energy regulator, EWURA.
It is anticipated that the Re-rating Agreement will be signed when Jacobsen commissions the first of three 35 MW turbines in Q4 2011.
Exploration activities
Orca now has a greater focus on exploration to balance its cash flow generative asset in Tanzania. This will commence with the drilling of the La Tosca well in the Po Valley Basin in Q4 2011 where the Company has signed a contract with a subsidiary of Northern Petroleum Plc to farm in on between 70% and 75% of its Longastrino exploration block.
The Longastrino block has several potential leads and it is anticipated that 3D seismic will be acquired on completion of the La Tosca well. Further drilling activities will be conducted if the seismic interpretation is positive.
The Company is still optimistic that the Italian government will ultimately issue a decree of environmental compatibility and allow further offshore drilling to re-commence in the Central Adriatic. The drilling of the Elsa-2 well is an excellent opportunity to participate in an appraisal project where there is a known 65 meter oil column that was drilled in 1992. This prospect is particularly attractive at the current oil price. In addition, the farm in provides the Company with significant upside through the ability to participate in the exploration of 11 adjacent blocks at a 15% working interest.
In Tanzania, Orca is actively pursuing a jack up rig to drill the Songo Songo West (SSW) exploration well. The development plan for SSW, and any tie into existing processing capacity, will be reviewed once the results of the well are known.
Strengthened board and management team
During 2010 the Board of Directors was restructured and three highly experienced independent directors, Lord Howard of Lympne, Robert (Bob) Wigley and Beer van Straten were elected. Orca is now able to announce that Robin Gaeta, currently a Director of a Shell division that focuses on the market entry strategies for small scale liquid natural gas projects, has agreed to be nominated to Orca's Board at the Annual General Meeting of Orca shareholders on 20 June 2011. His experience will increase our ability to develop alternative gas markets.
The Company has also continued to strengthen its management team. Additions were made in 2010 and this has continued into 2011. The recruitment of a highly experienced chief operating officer was identified as critical to the advancement of the Company's growth plans and I am delighted that Dale Rollins will join us in that role. He has a wealth of experience operating in Africa. He will report to me and assume responsibility for the day-to-day management of the Company and the implementation of the Board's strategy, targets and plans.
Corrosion update
Following a corrosion logging survey in Q4 2010, Orca suspended production from SS-5, reduced flow rates from the other wells and expedited the tie-in of SS-10.
In Q1 2011, the Company conducted a second corrosion logging run on all the wells except SS-5. The data was independently analysed and it was concluded that SS-9 may need to be taken out of production by the end of Q1 2012, subject to the results of re-logging of the well in September 2011. Accordingly, the Company determined that a new high producing onshore deviated well, SS-A, should be drilled in 2011 to ensure adequate deliverability when SS-9 is taken off stream. In addition SS-10 will be upgraded to increase deliverability.
The Company is currently looking to contract a land rig to undertake this work programme within a tight timeframe. The current availability of rigs is limited. The estimated capital cost is US$35 million. To manage this important project, an experienced drilling manager has been recruited and is currently assembling his team in Dar es Salaam. In addition, a new production engineer will be added in Tanzania in the second half of the year to ensure ongoing high level attention to maintaining the integrity of all wells.
Financing
The Company's 2011 work programme includes the drilling of SS-A, the enhancement of SS-10, the drilling of La Tosca in the Po Valley and the purchase of long lead time items for Songo Songo West. The indicative capital expenditure programme for 2011 is US$58 million compared with the current cash balance of US$47.8 million. While there should be sufficient funds to undertake this 2011 work programme after taking into account self generated cash flows for the balance of the year, the Company will look to secure a financing facility and/or raise new equity to cover 2012 exploration activities.
The Company's cost pool in Tanzania may be recovered during Q2 2011 as a result of strong sales revenue and relatively low capital expenditure levels. This would result in a reduction in the percentage of net revenue attributable to the Company prior to any significant expenditure on the drilling activities. Orca will also see a reduction in the net revenue allocated to the Company now that a significant proportion of production is coming from the deemed TPDC backed-in well (SS-10).
Strategy driven actions
At Orca we have spent much of the last year repositioning the Company for significant growth. With the Board and staff additions we have made, I believe we are ready to take Orca to the next level. We have a team that is up to the task and we intend to manage both growth and sustainability.
We see significant exploration upside in Italy, our first exploration drilling venture outside Tanzania. Once the initial prospect has been drilled, we will be looking to increase the chance of future success through additional seismic. With exploration success, the Company will look to sell or farm out its interests in Italy prior to the need to finance any development.
In Tanzania, Orca has an extremely strategic asset and in 2011 we will work to maximize its value while still addressing the inherent challenges associated with operating in an emerging hydrocarbon basin.
Orca is by far the largest producer and seller of natural gas in East Africa and it is well positioned to lead the way in developing East African gas markets and infrastructure. This is a very good time to be a natural gas developer in Tanzania. There is significant opportunity to capitalise on recent commercial gas discoveries, accelerate gas sales from the Songo Songo field and develop further infrastructure capacity. Tanzania is poised to capitalise on its new found resources and take the country to a new level of prosperity and energy self sufficiency. Orca is ready to play a significant role in contributing to that goal.
Condensed Consolidated Interim Statement of Comprehensive Income (unaudited)
ORCA EXPLORATION GROUP INC.
| THREE MONTHS ENDED | 31-Mar | 31-Mar | |
| (thousands of US dollars except per share amounts) | 2011 | 2010 | |
| Revenue | 9,640 | 8,259 | |
| Cost of sales | |||
| Production and distribution expenses | (1,026) | (1,087) | |
| Depletion expense | (1,582) | (979) | |
| 7,032 | 6,193 | ||
| General and administrative expenses | (2,850) | (2,733) | |
| Net finance costs | (152) | (187) | |
| Profit before taxation | 4,030 | 3,273 | |
| Taxation | (1,640) | (1,333) | |
| Profit after taxation and comprehensive income | 2,390 | 1,940 | |
| Earnings per share | |||
| Basic (US$) | 0.07 | 0.07 | |
| Diluted (US$) | 0.07 | 0.06 |
Condensed Consolidated Interim Statement of Financial Position (unaudited)
ORCA EXPLORATION GROUP INC
| AS AT | 31-Mar | 31-Dec | |
| (thousands of US dollars) | 2011 | 2010 | |
| ASSETS | |||
| Current Assets | |||
| Cash and cash equivalents | 47,776 | 45,519 | |
| Trade and other receivables | 14,384 | 13,583 | |
| Taxation Receivable | 5,471 | 4,009 | |
| Prepayments | 381 | 409 | |
| 68,012 | 63,520 | ||
| Non- Current Assets | |||
| Exploration and evaluation assets | 1,166 | 942 | |
| Property, plant and equipment | 59,448 | 59,946 | |
| 60,614 | 60,888 | ||
| Total Assets | 128,626 | 124,408 | |
| EQUITY AND LIABILITIES | |||
| Current Liabilities | |||
| Trade and other payables | 9,151 | 9,156 | |
| Taxation payable | 3,102 | 2,000 | |
| 12,253 | 11,156 | ||
| Non-Current Liabilities | |||
| Deferred income taxes | 13,347 | 12,809 | |
| Deferred additional profits tax | 2,453 | 2,260 | |
| 15,800 | 15,069 | ||
| Total Liabilities | 28,053 | 26,225 | |
| Equity | |||
| Capital stock | 85,100 | 85,100 | |
| Contributed surplus | 5,288 | 5,288 | |
| Accumulated income | 10,185 | 7,795 | |
| 100,573 | 98,183 | ||
| Total Equity and Liabilities | 128,626 | 124,408 |
Condensed Consolidated Interim Statement of Cash Flows (unaudited)
ORCA EXPLORATION GROUP INC
| THREE MONTHS ENDED | 31-Mar | 31-Mar | ||
| (thousands of US dollars) | 2011 | 2010 | ||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||
| Profit after taxation | 2,390 | 1,940 | ||
| Adjustment for : | ||||
| Depletion and depreciation | 1,630 | 1,031 | ||
| Stock-based compensation | 73 | 296 | ||
| Deferred income taxes | 538 | 987 | ||
| Deferred additional profits tax | 193 | 177 | ||
| Gain on disposal of vehicle | (5) | - | ||
| Interest income | (3) | (1) | ||
| Unrealised foreign exchange loss | 131 | 110 | ||
| 4,947 | 4,540 | |||
| Increase in trade and other receivables | (887) | (3,525) | ||
| Increase in taxation receivable | (1,462) | (148) | ||
| Decrease/(increase) in prepayments | 28 | (1,035) | ||
| (Decrease)/increase in trade and other payables | (232) | 1,340 | ||
| Increase in taxation payable | 1,102 | 346 | ||
| Net cash flows from operating activities | 3,496 | 1,518 | ||
| CASH FLOWS USED IN INVESTING ACTIVITIES | ||||
| Exploration and evaluation expenditures | (224) | (3) | ||
| Property, plant and equipment expenditures | (1,132) | (231) | ||
| Proceeds from sale of vehicle | 5 | - | ||
| Interest received | 3 | 1 | ||
| Increase/(decrease) in trade and other payables | 106 | (260) | ||
| Net cash used in investing activities | (1,242) | (493) | ||
| CASH FLOWS USED IN FINANCING ACTIVITIES | ||||
| Normal course issuer bid | - | - | ||
| Net cash flow used in financing activities | - | - | ||
| Increase in cash and cash equivalents | 2,254 | 1,025 | ||
| Cash and cash equivalents at the beginning of the period | 45,519 | 14,543 | ||
| Effect of change in foreign exchange | 3 | (51) | ||
| Cash and cash equivalents at the end of the period | 47,776 | 15,517 | ||
Condensed Consolidated Interim Statement of Changes in Shareholders' Equity (unaudited)
ORCA EXPLORATION GROUP INC
| (thousands of US dollars) | Capital stock | Contributed surplus | Accumulated loss | Total |
| Balance as at 1 January 2010 | 66,267 | 4,809 | (2,216) | 68,860 |
| Stock-based compensation | - | 155 | - | 155 |
| Total comprehensive income for the period | - | - | 1,940 | 1,940 |
| Balance as at 31 March 2010 | 66,267 | 4,964 | (276) | 70,955 |
| (thousands of US dollars) | Capital stock | Contributed surplus | Accumulated income | Total |
| Balance as at 1 January 2011 | 85,100 | 5,288 | 7,795 | 98,183 |
| Stock-based compensation | - | - | - | - |
| Total comprehensive income for the period | - | - | 2,390 | 2,390 |
| Balance as at 31 March 2011 | 85,100 | 5,288 | 10,185 | 100,573 |
Orca Exploration is an international public company engaged in natural gas exploration, development and supply in Tanzania, oil appraisal in Italy and the acquisition of an additional new oil exploration opportunity in another proven hydrocarbon basin. Orca Exploration trades on the TSXV under the trading symbols ORC.B and ORC.A.
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 disclosure contains certain forward-looking statements that involve substantial known and unknown risks and uncertainties, certain of which are beyond Orca's control, including 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 and obtaining required approvals of regulatory authorities. 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, including the amounts of proceeds, that Orca will derive therefrom. 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.
W. David Lyons, Chairman and CEO
+44-7717-100-200
[email protected]
Nigel A. Friend, CFO
+255 (0)22 2138737
[email protected]