Orca Exploration announces its result for the quarter ended 30 June 2010
TSX-V: ORC.A, ORC.B
TORTOLA, British Virgin Islands, Aug. 27 /CNW/ - Orca Exploration Group Inc ("Orca Exploration" or the "Company") announces its results for the quarter ended 30 June 2010.
Highlights
- Increased profit before taxation by 279% to
US$4.1 million (Q2 2009: US$1.1 million).
- Increased funds flow from operating activities by 96% to
US$4.9 million (Q2 2009: US$2.5 million).
- Increased Q2 2010 sales of Additional Gas by 30% to 3,002 MMcf or
33.0 MMcfd (Q2 2009: 2,306 MMcf or 25.3 MMcfd).
- Increased working capital by 19% during the quarter to
US$24.9 million (US$20.9 million at 31 March 2010).
- Signed a farm in agreement with Petroceltic International plc for
a 15% working interest in the B.R268.RG Permit offshore Italy.
- Announced the establishment of a new infrastructure division,
EastCoast Transmission and Marketing to develop a gas pipeline
network in East Africa.
- Reorganised the Orca Board with the appointment of three
experienced non - executive directors namely the Right Honourable
Michael Howard QC, Bob Wigley and Beer Van Straten.
Financial and Operating Highlights
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Three months ended or as at Six months ended or as at
---------------------------- --------------------------
30-Jun 30-Jun 30-Jun 30-Jun
2010 2009 Change 2010 2009 Change
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Financial (US$'000)
except where
otherwise stated
Revenue 9,017 5,501 64% 17,276 9,944 74%
Profit before
taxation 4,092 1,079 279% 7,365 1,401 426%
Operating netback
(US$/mcf) 2.37 2.17 9% 2.27 2.18 4%
Cash and cash
equivalents 18,319 9,072 102% 18,319 9,072 102%
Working capital 24,941 9,939 151% 24,941 9,939 151%
Shareholders'
equity 73,942 65,477 13% 73,942 65,477 13%
Profit per share
- basic (US$) 0.09 0.01 800% 0.15 0.01 1,400%
Profit per share
- diluted (US$) 0.08 0.01 700% 0.15 0.01 1,400%
Funds flow from
operating
activities 4,937 2,514 96% 9,226 3,981 132%
Funds per share
from operating
activities
- basic (US$) 0.17 0.09 89% 0.31 0.13 138%
Funds per share
from operating
activities
- diluted (US$) 0.16 0.08 100% 0.30 0.13 131%
Net cash flows
from operating
activities 3,472 1,728 101% 4,939 3,632 36%
Net cash flows per
share from operating
activities
- basic (US$) 0.12 0.06 100% 0.17 0.12 42%
Net cash flows per
share from operating
activities
- diluted (US$) 0.11 0.06 83% 0.16 0.12 33%
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Outstanding Shares
('000)
Class A shares 1,751 1,751 0% 1,751 1,751 0%
Class B shares 27,743 27,788 0% 27,743 27,788 0%
Options 2,797 2,797 0% 2,797 2,797 0%
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Operating
Additional Gas sold
(MMcf) - industrial 562 613 (8%) 1,048 973 8%
Additional Gas sold
(MMcf) - power 2,440 1,693 44% 5,096 3,263 56%
Additional Gas sold
(MMcfd) - industrial 6.2 6.7 (7%) 5.8 5.4 7%
Additional Gas sold
(MMcfd) - power 26.8 18.6 44% 28.2 18.0 56%
Average price per
mcf (US$) -
industrial 9.45 7.02 35% 9.38 7.35 28%
Average price per
mcf (US$) - power 2.56 2.36 8% 2.56 2.37 8%
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Chairman & CEO's Letter to Shareholders
To increase shareholder value, Orca Exploration will focus on three growth strategies:
- Maximise and monetise the value in existing assets in Tanzania;
- Increase assets by exploring and developing new high impact
hydrocarbon opportunities; and
- Development of infrastructure capacity in East Africa.
Our goal is clear - to grow long term shareholder value and have that value recognised. Over the first half of 2010, Orca has taken important steps to maximise the potential of its Tanzanian gas business and to create additional upside through participation in new exploration and development projects. Our growth activities have included:
- Working with other stakeholders in Tanzania to increase the
deliverability of Songo Songo gas;
- Planning for the drilling of the low risk, high potential Songo
Songo West exploration prospect in 2011;
- Establishing the EastCoast Transmission and Marketing division of
Orca as a catalyst for natural gas expansion in East Africa;
- Farming in on the appraisal drilling of the Elsa-2 well and the
evaluation of 11 adjacent exploration prospects in the Italian
Adriatic; and
- Working to secure a new low risk high impact oil exploration
prospect.
Orca has the financial strength to engage in these vigorous growth initiatives. We have a strong balance sheet and increasing cash reserves. The Company had US$18 million in cash reserves at the end of June and funds flow is expected to increase at approximately US$2 million per month until the end of 2010.
This strong cash position will be supplemented with the proceeds of up to approximately US$18 million from the rights issue which is due to close in October 2010.
Strong and growing funds flow in Tanzania
During the second quarter of 2010, Orca's gas production and marketing in Tanzania generated funds flow of US$4.9 million, an 96% increase compared with the same period in 2009.
Gas sales volumes will continue to increase in Q3 2010 as textile production takes advantage of the availability of cheap cotton and there is greater demand for gas in electricity generation as the country's hydro generation output declines during the dry season.
However, the need to increase gas throughput (currently restricted to 90 MMcfd) remains urgent as there have been recent occasions when demand for gas exceeded the infrastructure capacity. Orca is working with all stakeholders to accelerate the development of Tanzania's infrastructure to relieve this situation.
The Company is an active participant in the project led by Songas Limited to maximise the capacity of the existing system to 140 MMcfd through the construction of new processing trains and the optimisation of pipeline pressures. This is forecast to be operational by the end of 2012.
EastCoast Transmission and Marketing
To lead in the development of natural gas markets in East Africa, Orca recently announced the creation of a new infrastructure division, EastCoast Transmission and Marketing. This will accelerate the commercialisation of the Tanzanian gas reserves above 140 MMcfd whilst also creating a new revenue stream for the Company.
The first EastCoast Transmission and Marketing project being evaluated is the feasibility of a 207 kilometer onshore pipeline that could run parallel to the existing onshore pipeline from the Songo Songo field area to Dar es Salaam.
New gas discoveries will further increase the need for an expanded transmission infrastructure. If there is success with the drilling of Songo Songo West the next EastCoast Transmission project could be the construction of a new 25-kilometer offshore pipeline to bring Songo Songo West gas to market. Interest in Tanzania's potential new gas reserves continues to grow. In recent months a number of larger energy companies including BG Plc, Statoil and Exxon Mobil have been examining opportunities to drill for gas offshore. Significant infrastructure expansion and additions throughout East Africa would be needed to transport gas that these companies discover. Ultimately it is envisioned that an EastCoast Transmission pipeline could be extended along the coast north to Mombasa and south to Mtwara near the border with Mozambique adjacent to the Mnazi Bay gas discovery.
Orca is in a unique position to lead such an infrastructure project. Orca is well established and has positive working relationships with the Government of Tanzania, Tanzanian Petroleum Development Corporation (TDPC) and the energy regulator, EWURA. The Company is currently in discussion with a number of both equity and debt providers about the financing of a new infrastructure company and is keen to have a significant East Africa finance component.
Low risk appraisal well in Italy
During Q2 2010, Orca signed a farm-in agreement with Petroceltic International Plc to participate in the drilling of a low risk appraisal well offshore Italy in the Adriatic. The area has significant oil exploration upside.
Under the terms of the farm-in agreement, the Company will fund 30% of the Elsa-2 appraisal well up to a maximum of US$11.5 million to earn a 15% working interest in the permit. Thereafter, Orca will fund all future costs relating to the well and the permit in proportion to its participating interest. Orca has also agreed to pay Petroceltic fifteen per cent (15%) of the back costs in relation to the well up to a maximum of US$0.5 million.
The Elsa field was discovered in 1992 by AGIP with the drilling of the Elsa-1 well which encountered an oil column of 65 meters in the Lower Cretaceous Maiolica Formation at a depth of approximately 4,500 meters. The Elsa-2 appraisal well has the primary objective of confirming the commercial production potential of the reservoir when flow tested. Positive results from Elsa-2 will be followed by a 3D seismic survey over the field.
However recent worldwide concerns about offshore drilling caused by the blowout of the Macondo well in the U.S. Gulf has led the Italian government to pass a law exclude drilling in the Italian seas within 5 miles of the coastline and within 12 miles around the perimeter of protected Marine Parks. In view of this, Petroceltic has applied to suspend the current timing requirement that the Elsa-2 well was to be spud prior to 31 October 2010. The permit will remain suspended until such time as the Ministry of Environment issues a decree of environmental compatibility for the drilling program and the partners apply for the permit to be reinstated. Orca is not liable to any costs associated with the drilling of Elsa 2 until a rig contract is signed, but anticipates that this could occur in 2011.
In addition to interest earned by the drilling of Elsa-2 Orca's farm-in agreement with Petroceltic provides an opportunity for Orca to participate on a ground floor basis for 15% of an additional 11 exploration blocks in the Central Adriatic.
Gas sales and financial results
The Company's natural gas production and marketing operations in Tanzania continue to provide Orca with a solid financial and operating foundation. Gas sales to the power sector remained strong during Q2 despite increased production of hydro electricity during the rainy season.
Orca's funds flow are forecast to continue to grow in the second half of 2010 bringing anticipated funds flow for the year to approximately US$17 million. The Company's second quarter G&A expenditures were in line with 2009 at US$2.4 million. This was achieved at the same time as sales volumes increased 30%.
Strategy driven action
Your Company's recently strengthened Board of Directors, Orca's management and all employees are poised to take the Company to a new level of activity, growth and performance over the course of 2010 and 2011. Your Company is taking action to use its long life cash flows in Tanzania to expand production and transportation infrastructure and to increase reserves by the drilling of a relatively low risk exploration well at Songo Songo West.
In Italy, Orca looks forward to building a significant oil business in this proven and stable hydrocarbon basin commencing with the drilling of the Elsa-2 appraisal well as soon as the legal structure permits. To balance our current portfolio we have also signed a production sharing agreement for a high impact low risk exploration licence in a third jurisdiction. The ratification of that agreement will further strengthen your Company's portfolio, providing a fresh opportunity to add value.
We are committed to grow long term shareholder value and to have that value recognized to the benefit of our shareholders. Together, we are taking action to deliver on Orca's renewed growth agenda.
Consolidated Statement of Comprehensive Income (unaudited)
ORCA EXPLORATION GROUP INC.
------------------- -----------------
Three months ended Six months ended
------------------- -----------------
(thousands of US dollars except 30-Jun 30-Jun 30-Jun 30-Jun
per share amounts) 2010 2009 2010 2009
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Revenue 9,017 5,501 17,276 9,944
Cost of sales
Production and distribution expenses (1,079) (596) (2,166) (901)
Depletion expense (931) (909) (1,910) (1,662)
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7,007 3,996 13,200 7,381
Administrative expenses (2,408) (2,941) (5,141) (5,986)
Net financing (charges)/income (507) 24 (694) 6
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------------------------------------------------------- -----------------
Profit before taxation 4,092 1,079 7,365 1,401
Taxation (1,484) (700) (2,817) (1,190)
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Profit and comprehensive income 2,608 379 4,548 211
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Profit per share
------------------------------------------------------- -----------------
Basic (US$) 0.09 0.01 0.15 0.01
Diluted (US$) 0.08 0.01 0.15 0.01
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Consolidated Statement of Financial Position (unaudited)
ORCA EXPLORATION GROUP INC
-------- --------
As at 30-Jun 31-Dec
(thousands of US dollars) 2010 2009
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ASSETS
Current assets
Cash and cash equivalents 18,319 14,543
Trade and other receivables 13,098 9,181
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31,417 23,724
Non-current assets
Exploration and evaluation asset 763 760
Property, plant and equipment 60,894 61,793
-------------------------------------------------------------------------
61,657 62,553
-------------------------------------------------------------------------
93,074 86,277
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EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 6,476 6,889
Non-current liabilities
Deferred income taxes 10,836 9,068
Deferred additional profits tax 1,820 1,460
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19,132 17,417
Equity attributable to owners
Capital stock 66,267 66,267
Other components of equity 5,343 4,809
Accumulated income/(loss) 2,332 (2,216)
-------------------------------------------------------------------------
73,942 68,860
-------------------------------------------------------------------------
93,074 86,277
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Consolidated Statement of Cash Flows (unaudited)
ORCA EXPLORATION GROUP INC
------------------- -----------------
Three months ended Six months ended
------------------- -----------------
30-Jun 30-Jun 30-Jun 30-Jun
(thousands of US dollars) 2010 2009 2010 2009
------------------------------------------------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Profit after taxation 2,608 379 4,548 211
Adjustment for:
Depletion and depreciation 988 940 2,019 1,717
Stock-based compensation 379 414 534 710
Deferred income taxes 781 700 1,768 1,190
Deferred additional profits tax 183 92 360 180
Interest income (2) (11) (3) (27)
------------------------------------------------------- -----------------
4,937 2,514 9,226 3,981
Decrease/(increase) in trade and
other receivables 661 (718) (3,917) 4,159
Decrease in trade and other payables (2,126) (68) (370) (4,508)
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Net cash flows from operating
activities 3,472 1,728 4,939 3,632
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CASH FLOWS USED IN INVESTING ACTIVITIES
Exploration and evaluation expenditures - (67) (3) (106)
Property, plant and equipment
expenditures (889) (1,682) (1,120) (3,534)
Interest income 2 11 3 27
Increase/(decrease) in trade and
other payables 217 (628) (43) (1,377)
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Net cash used in investing activities (670) (2,366) (1,163) (4,990)
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CASH FLOWS USED IN FINANCING ACTIVITIES
Normal course issuer bid - - - (156)
------------------------------------------------------- -----------------
Net cash flow used in financing
activities - - - (156)
------------------------------------------------------- -----------------
Increase/(decrease) in cash and
cash equivalents 2,802 (638) 3,776 (1,514)
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Cash and cash equivalents at
the beginning of the period 15,517 9,710 14,543 10,586
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Cash and cash equivalents at the
end of the period 18,319 9,072 18,319 9,072
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Statement of Changes in Shareholders' Equity (unaudited)
ORCA EXPLORATION GROUP INC
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Other
(thousands of US dollars) Capital components Accumulated
stock of equity loss Total
-------------------------------------------------------------------------
Balance as at 1 January 2009 66,537 3,715 (5,540) 64,712
Stock-based compensation - 710 - 710
Normal course issuer bid (168) 12 - (156)
Total comprehensive income
for the period - - 211 211
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Balance as at 30 June 2009 66,369 4,437 (5,329) 65,477
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Other
(thousands of US dollars) Capital components Accumulated
stock of equity Income/(loss) Total
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance as at 1 January 2010 66,267 4,809 (2,216) 68,860
Stock-based compensation - 534 - 534
Total comprehensive income
for the period - - 4,548 4,548
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Balance as at 30 June 2010 66,267 5,343 2,332 73,942
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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.
For further information: W. David Lyons, Chairman and CEO, +44-7717-100-200, [email protected]; Nigel A. Friend, CFO, +255 (0)22 2138737, [email protected]
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