Porto Energy Corp. Reports Results for Second Quarter of Fiscal 2014

THE WOODLANDS, TX, April 29, 2014 /CNW/ - Porto Energy Corp., ("Porto" or the "Company") (TSXV:PEC), a company focused on oil and gas exploration, appraisal and development in Portugal, today announced its financial results for the three and six months ended February 28, 2014. All amounts are stated in US dollars unless otherwise noted by C$ for Canadian dollars or € for Euros.

Selected Recent Highlights

During the six month period ended and subsequent to February 28, 2014 the Company:

• Entered into a non-binding term sheet with Integrity Growth Capital LLC on behalf of accredited investors, for a private placement of senior unsecured convertible promissory notes in the principal minimum amount of US$10.0 million and up to US$15.0 million. Porto is no longer pursuing the non-brokered private placement of Porto stock in Canada as was previously mentioned in its fiscal Q1 filings.  See "$1.5 Million Non-brokered Private Placement" below.
  
  
• Reached agreement to terms under an arrangement with Norway-based TGS-NOPEC Geophysical Company ASA (OSLO: TGS) for the licensing and marketing of four sets of survey data including one 3D offshore survey spanning approximately 1,100 square kilometers, two 3D onshore surveys totaling 358 square kilometers, and one 24,000 square kilometer aeromagnetic survey which could bring in up to $1.5 million net to Porto.

"Given the Company has not yet received approval of the TGS-NOPEC seismic data sale from the Portuguese government, we are focusing our efforts on closing on the convertible promissory note as expeditiously as possible," said Joseph Ash, President and CEO of Porto Energy Corp. "We continue to conserve capital in an effort to provide enough time to bring the convertible financing to a successful close."

Financial Review

Three Months Ended February 28, 2014 compared with the Three Months Ended February 28, 2013

Revenues

Revenue during the three months ended February 28, 2014, was $2,141 compared with $58 for the corresponding period ended February 28, 2013.  Revenue consists primarily of interest income from cash on hand.  The Company has not yet established commercial oil and gas production from its Concessions and as a result, its sources of revenue are not of a recurring consistent nature.

General and Administrative Expense ("G&A")

G&A expense decreased by $429,602 from $892,935 for the three months ended February 28, 2013 to $463,333 for the corresponding period in 2014.  The decrease in G&A expense for the three months ended February 28, 2014 was primarily a result of decreased salaries and wages, consulting and professional fees, partially offset by increased insurance expenses.

Share-based Compensation

Share-based payments expense for the three months ended February 28, 2014 was $2,695, compared with $19,957 for the three months ended February 28, 2013.  Share-based payment expense during the three month period ended February 28, 2014 was due to the graded vesting of the October 2011 grant of 900,000 options to acquire common shares of the Company to certain contract personnel hired on full time and the August 2012 vesting of the 1,000,000 options to acquire common shares that were previously granted to a consultant of the Company.

Share-based payment expense during the three month period ended February 28, 2013 was due to the graded vesting of the October 2011 grant of 900,000 options to acquire common shares of the Company to certain contract personnel hired on full time, the graded vesting of the 3,110,000 stock options granted in December 2011 (one-half of which vested immediately), and the August 2012 vesting of the 1,000,000 options to acquire common shares that were previously granted to a consultant of the Company.

Finance Cost

Finance cost for the three months ended February 28, 2014, was $38 compared with $146 for the comparative period in 2013.  Finance expense includes the non-cash accretion of decommissioning obligations for future abandonment costs for prior wells drilled in Portugal for the period.

Interest Expense

Interest expense for the three months ended February 28, 2014, was $1,125 compared with $nil for the comparative period in 2012.  Interest expense primarily reflects the interest incurred on outstanding payables.

Foreign Currency Translation

Foreign currency translation losses for the three months ended February 28, 2014, were $22,451 in comparison to translation gains of $34,153 in the comparative period of 2013.  The foreign currency unrealized gains and losses reflect the changing value of the Canadian dollar/Euro versus the US dollar in which the Company maintains its accounts at the respective period ends.

Depreciation

Depreciation expense of $4,455 was recorded during the three month period ended February 28, 2014 as compared to $9,052 recorded during the three months ended February 28, 2013.  These amounts are primarily due to the depreciation of furniture and fixtures. The decline in the current year is due to some assets becoming fully depreciated.

Impairment on Exploration and Evaluation Assets

For the three months ended February 28, 2014 and 2013, no additional impairment provision was recorded as there were no further indicators of impairment other than what was reported at November 30, 2013 and 2012, respectively.

Net Loss Before Income Taxes

The Company recorded net losses before income taxes for the three months ended February 28, 2014 of $491,956, compared with $887,879 for the comparative period in 2013.  As the Company is in the exploration phase of operations, there are currently no oil and natural gas producing properties generating revenues. The Company's net losses for these periods were additionally impacted by general and administrative expenses including salaries, office costs and travel costs in addition to professional fees and share-based payments.  The fair value of the share-based payments was a non-cash expense in these periods.

Income Taxes

The Company recorded no income tax expense on net losses before income tax of $491,956 and $887,879 for the three months ended February 28, 2014 and 2013, respectively. The difference between the effective tax rate recognized and the blended statutory rates of its various taxing jurisdictions in which the Company operates is primarily due to it applying a valuation allowance for the full amount of its gross future tax asset as it believes, based on the weight of available evidence, that it is more likely than not that the future tax asset will not be realized prior to the expiration of net operating loss carryforwards in various amounts at 2026 through 2032.  Net operating loss carry forwards as of February 28, 2014 were approximately $38.6 million.

Comprehensive Income (Loss)

The Company recorded a comprehensive loss for the three months ended February 28, 2014 of $491,956, compared with a comprehensive loss of $887,879 for the corresponding period ended February 28, 2013.  The difference between net loss and comprehensive loss between the periods is primarily due to a decrease in general and adminisitrative expenses the three months ended February 28, 2014.

Six Months Ended February 28, 2014 compared with the Six Months Ended February 28, 2013

Revenues

Revenue during the six months ended Feberuary 28, 2014, was $2,166 compared with $468 for the corresponding period ended February 28, 2013.  Revenue consists primarily of interest income from cash on hand.  The Company has not yet established commercial oil and gas production from its Concessions and as a result, its sources of revenue are not of a recurring consistent nature.

General and Administrative Expense ("G&A")

G&A expense decreased by $1,058,277 from $2,102,709 for the six months ended February 28, 2013 to $1,044,432 for the corresponding period in 2014.  The decrease in G&A expense for the six months ended February 28, 2014 was primarily a result of decreased salaries and wages, consulting and professional fees, partially offset by increased insurance costs.

Share-based Compensation

Share-based payments expense for the six months ended February 28, 2014 was $6,718, compared with $55,350 for the six months ended February 28, 2013.  Share-based payment expense during the six month period ended February 28, 2014 was due to the graded vesting of the October 2011 grant of 900,000 options to acquire common shares of the Company to certain contract personnel hired on full time and the August 2012 vesting of the 1,000,000 options to acquire common shares that were previously granted to a consultant of the Company.

Share-based payment expense during the six month period ended February 28, 2013 was due to the graded vesting of the October 2011 grant of 900,000 options to acquire common shares of the Company to certain contract personnel hired on full time, the graded vesting of the 3,110,000 stock options granted in December 2011 (one-half of which vested immediately), and the August 2012 vesting of the 1,000,000 options to acquire common shares that were previously granted to a consultant of the Company.

Finance Cost

Finance cost for the six months ended February 28, 2014, was $38 compared with $664 for the comparative period in 2013.  Finance expense includes the non-cash accretion of decommissioning obligations for future abandonment costs for prior wells drilled in Portugal for the period.

Interest Expense

Interest expense for the six months ended February 28, 2014, was $1,125 compared with $3,033 for the comparative period in 2013.  Interest expense primarily reflects the interest incurred on outstanding payables.

Foreign Currency Translation

Foreign currency translation gains for the six months ended February 28, 2014, were $33,428 in comparison to translation losses of $94,646 in the comparative period of 2013.  The foreign currency unrealized gains and losses reflect the changing value of the Canadian dollar/Euro versus the US dollar in which the Company maintains its accounts at the respective period ends.

Depreciation

Depreciation expense of $13,507 and $18,104 was recorded during the six month periods ended February 28, 2014 and 2013, respectively.  These amounts are primarily due to the depreciation of furniture and fixtures. The decline in the current year period is due to some assets becoming fully depreciated.

Impairment on Exploration and Evaluation Assets

Impairments of $641,594 were recorded during the three month period ended November 30, 2013, as a result of an impairment review on the carrying value of the exploration and evaluation assets. The impairment amount was based on comparing the carrying value of the assets to their recoverable amounts estimated using the greater of their value in use or the fair market value. The value in use was determined based on a third party evaluation report of Porto's resources using a discount rate of 26%. The value in use was significantly impacted due to the increased risks associated with the funding requirements necessary to realize and generate future cash flows from all of the Cash Generating Units ("CGU's") within the exploration and evaluation assets. The fair market value of the assets was based on the Company's closing market price of its common stock as of November 30, 2013, adjusted for net working capital items. As a result, it was determined that under fair market value, there was an impairment on the carrying value of all of the CGU's which was recorded against the Onshore Gas CGU.

Impairments of $20,535,000 were recorded during the three month period ended November 30, 2012, as a result of an impairment review on the carrying value of the exploration and evaluation assets. The impairment amount was based on the methodology as described above. The value in use was determined based on a third party evaluation report of Porto's our resources using a discount rate of 26% and the fair market value of the assets was based on the Company's closing market price of its common stock as of November 30, 2012, adjusted for net working capital items. As a result, it was determined that under fair market value, there was an impairment on the carrying value of all of the CGU's which was recorded against each CGU proportionately.

Net Loss Before Income Taxes

The Company recorded net losses before income taxes for the six months ended February 28, 2014 of $1,671,820, compared with $22,809,038 for the comparative period in 2013.  As the Company is in the exploration phase of operations, there are currently no oil and natural gas producing properties generating revenues.  The net loss for the 2013 period was primarily due to the impairment of exploration and evaluation assets. The Company's net losses for these periods were additionally impacted by general and administrative expenses including salaries, office costs and travel costs in addition to professional fees and share-based payments.  The fair value of the share-based payments was a non-cash expense in these periods.

Income Taxes

The Company recorded an income tax expense of $676 on a net loss before income tax of $1,671,820 for the six months ended February 28, 2014. During the corresponding period ended February 28, 2013, the Company recorded an income tax benefit of $8,148,175, on a net loss before income tax of $22,809,038. The income tax benefit during the six months ended February 28, 2013 is primarily due to the impairment loss of $20,535,000 which reduced the book value of the Company's assets below the associated tax book value. As a result, the associated deferred tax liability pool is reversed as the presumption of future taxable income being generated from these assets is no longer valid. The difference between the effective tax rate recognized and the blended statutory rates of its various taxing jurisdictions in which the Company operates is primarily due to it applying a valuation allowance for the full amount of its gross future tax asset as it believes, based on the weight of available evidence, that it is more likely than not that the future tax asset will not be realized prior to the expiration of net operating loss carryforwards in various amounts at 2026 through 2032.  Net operating loss carry forwards as of February 28, 2014 were approximately $38.6 million.

Comprehensive Income (Loss)

The Company recorded a comprehensive loss for the six months ended February 28, 2014 of $1,672,496, compared with a comprehensive loss of $14,660,863 for the corresponding period ended February 28, 2013.  The difference between net loss and comprehensive loss between the periods is primarily due to the impairment on the exploration and evaluation assets recorded during the six months ended February 28, 2013.

Operational Review and Outlook

Although Porto has continued to refine its data models over the basin, it has not drilled a well since the ALC-1 which was declared non-economic during the second fiscal quarter ended February 28, 2013.  In June 2013 the Company received approval of its original 2013 work program from Divisão para a Pesquisa e Exploração de Petróleo ("DPEP") which constituted the fulfillment of the Company's 2012 work program commitments by the Portuguese government.  However, as of the date of this filing, the Company continues to work with DPEP to renegotiate the original work to be performed under its initial 2013 work program commitments as well as to extend the due date of those commitments to the end of 2014.  The Company believes the key to bringing this activity to a successful conclusion largely depends on the governments pending approval regarding the TGS-NOPAC seismic data sale as referred to below.  However, to date, the Company has been unable to secure approval of this sales contract from the Portuguese Government, casting doubt as to whether the contract will ultimately be approved.   See "2014 Work Program" section below.

TGS Seismic Data Sales Contract

In January 2014, the Company entered in an agreement with Norway-based TGS-NOPEC Geophysical Company ASA (OSLO:TGS) for the licensing and marketing of four sets of survey data including one 3D offshore survey spanning approximately 1,100 square kilometers, two 3D onshore surveys totaling 358 square kilometers, and one 24,000 square kilometer aeromagnetic survey.  Each single license for the entire data set has the potential to bring in up to $1.5 million net to Porto, which would provide enough funding for the Company to meet its working capital obligations for 12 months or more while it continues to market its assets to interested parties.

$1.5 Million Non-brokered Private Placement

In November 2013, the Company launched a non-brokered private placement of up to 150 Units (the "Offering") of the Company at a price of CDN$10,000 per Unit to raise gross proceeds of up to CDN$1,500,000 on a reasonable commercial best efforts basis. Due to the one-cent price of the Company's stock and other market factors around the lack of success of the Company, the marketing of the private placement was unsuccessful.  Porto is no longer pursuing the non-brokered private placement of Porto stock in Canada.

$10.0 to $15.0 Million Convertible Promissory Note Financing

In March 2014 the Company entered into a non-binding term sheet (the "Agreement") with Integrity Growth Capital LLC (the "Lead Investor Representative") on behalf of accredited investors, for a private placement of senior unsecured convertible promissory notes (the "Notes") in the principal minimum amount of US$10.0 million and up to US$15.0 million (the "Financing").  The proceeds from the Financing will be used to drill, test and complete one Lias unconventional resource well and for other corporate purposes as determined by a Committee of the holders of Notes.

The Notes will be convertible into the common stock of the Company's subsidiary, Mohave Oil and Gas Corporation's ("Mohave").  The applicable conversion rate of each Note shall be determined in a manner such that the holders of the Notes, in the aggregate, will own ninety percent (90%) of the outstanding voting capital stock of Mohave at the time of the conversion.  The remaining 10% of Mohave at the time of the conversion will be owned by Porto.

The closing of the Financing is expected to occur on or before May 31, 2014 and, if successful, is subject the negotiation and execution of definitive agreements, board approval, the approval of Porto shareholders and regulatory approval including the satisfaction of customary conditions of the TSXV.  To mitigate the impact on working capital due to the issues as described above in the "TGS Seismic Data Sales Contract" section, the Company may be able to secure a non-refundable security deposit in the amount of 1% of the principle amount that would then be applied against any future funding.

Drilling Operations

Porto has suspended ground operations in Portugal to help conserve capital. As a result, it has not drilled a well since the ALC-1 well in November of 2012 as mentioned above.

Drilling Outlook

2014 Work Program

Porto is in discussions with the DPEP to amend the original 2013 work program commitments to concentrate on environmental studies necessary before the Company begins its Lias development plan and to extend the completion deadline to the end of 2014.  The original 2013 well program, consisted of drilling one deep well (terminal depth greater than 3,000 metres) and possibly one horizontal well, contingent upon the results of the deep well, both within the Lias interval; drilling up to seven stratigraphic wells to advance the exploration and development of the Lias stratigraphic interval; the acquisition of 150 km of 2-D  seismic data on shore that may also partially benefit the offshore prospects; and further acquisition and analysis of geologic data to expand the Company's understanding of the basin in general.  The original 2013 work program was approved by DPEP in June 2013, successfully concluding the Company's 2012 drilling program requirements.  Based on the working interests of the Company and the obligations of its joint venture partner as set out in the farm-out agreement and governed by the joint operating agreement, the Company anticipated its portion of the costs to be between $7.1 million and $11.2 million depending on the results of the initial Presalt well and whether or not the drilling of a horizontal well is warranted.

As of the date of this filing, the Company continues to negotiate the details of the amended work program going forward with DPEP and expects a successful conclusion to these discussions during the second calendar quarter 2014.  The amended work program is expected to significantly reduce the Company's capital commitments in 2014.  Until financing is sourced, it will allow the Company to continue to carry out operational activities that fulfill its future work program commitments with limited funding. The amended program is expected to be funded through seismic data sales, joint venturing efforts or private debt and/or equity.

To view the Company's three and six month periods ended February 28, 2014 Consolidated Financial Statements, related Notes to Consolidated Financial Statements, and Management's Discussion and Analysis, please see the Company's filings which will be available on www.sedar.com and at www.portoenergy.com.

About Porto Energy Corp.

Porto Energy Corp. is an international oil and gas company engaged in the exploration of crude oil and natural gas in Portugal, including the appraisal of a gas discovery.  Through its wholly owned subsidiary, Mohave Oil And Gas Corporation (a Texas corporation with branch offices in Portugal), the Company holds working interests in seven concessions in Portugal's Lusitanian Basin totaling 1.6 million net acres. Through its exploration efforts to date, the Company has identified seven major exploration trends over its concessions and generated more than 45 prospects and leads. Porto Energy's shares trade on the TSX Venture Exchange under the ticker symbol "PEC". For more information on Porto Energy visit www.portoenergy.com.

Cautionary Statements

No proved, probable or possible reserves have been assigned by the Company at this time. Undiscovered resources are those quantities of oil and gas estimated on a given date to be contained in accumulations yet to be discovered. Estimates of resources always involve uncertainty, and the degree of uncertainty can vary widely between accumulations/projects and over the life of a project. There is no certainty that it will be commercially viable to produce any portion of the resources.

Estimates with respect to resources that may be developed and produced in the future are often based upon volumetric calculations, probabilistic methods and upon analogy to similar types of resources, rather than upon actual production history. Estimates based on these methods generally are less reliable than those based on actual production history. Subsequent evaluation of the same resources based upon production history will result in variations, which may be material, in the estimated resources. Resource estimates may require revision based on actual production experience.

Prospective resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects.

Best Estimate is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. Using probabilistic methods, there should be at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate.

This press release contains certain forward-looking statements.  These statements relate to future events or the Company's future performance.  All statements other than statements of historical fact are forward-looking statements.  The use of any of the words "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "should", "believe", "predict" and "potential" and similar expressions are intended to identify forward-looking statements.  These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. No assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.  These forward-looking statements are made as of the date of this press release and the Company does not undertake to update any forward-looking statements that are contained in this press release, except in accordance with applicable securities laws.

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

SOURCE: Porto Energy Corp.

Heath Cleaver - Chief Financial Officer

Phone: [phone]