Porto Energy Corp. Reports Results for First Quarter of Fiscal 2013
THE WOODLANDS, TX, Jan. 29, 2013 /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 quarter ended November 30, 2012. All amounts are stated in US dollars unless otherwise noted by C$ for Canadian dollars or € for Euros.
Selected Recent Highlights
During the first fiscal quarter ended November 30, 2012 the Company:
- Completed the ALC-1 well with Galp carrying Porto for 50% of the well costs. The well reached reached a total measured depth of approximately 3,000 meters and encountered a 300 metre gas column trapped below salt, but did not find sufficient reservoir sands to be a commercial success. The salt sealing mechanism was shown to be in place and the Presalt charge and migration was confirmed as the sands were found to be gas bearing. Reservoir containment was also demonstrated since there was no breach.
"We continue to work through negotiations with our joint venture partners with respect to next steps in the exploration of the Lias and Presalt plays," said Joseph Ash, President and CEO of Porto Energy Corp. "In the near-term we are focusing on the Lias play and continue to analyze data from the expanded 23-hole stratigraphic drilling program and expect to formulate a go-forward plan in conjunction with our partners in the coming months."
Three Months Ended November 30, 2012 compared with the Three Months Ended November 30, 2011
Revenue during the three months ended November 30, 2012, was $410 compared with $9,229 for the corresponding period ended November 30, 2011. Revenue consists primarily of interest income from cash on hand. The Company has not yet established commercial oil and gas production from its Concessions, as a result its sources of revenue are not of a recurring consistent nature.
General and Administrative Expense ("G&A")
G&A expense increased by $243,068 from $966,706 for the three months ended November 30, 2011 to $1,209,774 for the corresponding period in 2012. The increase in G&A expense for the three months ended November 30, 2012 was primarily a result of increased consulting and professional fees, salaries and wages, partially offset by decreased travel expenses.
Share-based payments expense for the three months ended November 30, 2012 was $35,393, compared with $380,339 for the three months ended November 30, 2011. Share-based payment expense during the three months ended November 30, 2012 is due to the graded vesting of 11,600,000 stock options granted to directors, officers, employees and consultants of the Company in August 2011, of which 950,000 options expired due to the Company's reorganization efforts (not including the 598,208 options granted prior to August 2011 that expired as a result of the Company's reorganization efforts), 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 vesting of the 1,000,000 options to acquire common shares in August 2012 that were previously granted to a consultant of the Company.
Share-based payment expense during the three months ended November 30, 2011 is due to the graded vesting of 11,600,000 stock options granted to directors, officers, employees and consultants of the Company in August 2011, of which 950,000 options expired due to employment terminations and the graded vesting of the October 2011 grant of 900,000 options to acquire common shares of the Company previously granted to certain contract personnel hired on full time.
There are now options outstanding to purchase a total of 15,660,000 common shares of the Company.
Finance expense for the three months ended November 30, 2012, was $3,551 compared with $534 for the comparative period in 2011. Finance expense includes the non-cash accretion of decommissioning obligations for future abandonment costs for prior wells drilled in Portugal for the period and also reflects interest accrued on outstanding payables.
Foreign Currency Translation
Foreign currency translation losses for the three months ended November 30, 2012, were $128,799 in comparison to translation gains of $69,689 in the comparative period for 2011. 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 expense of $9,052 was recorded during the three months ended November 30, 2012, compared with $9,675 during the comparative period in 2011. These amounts are largely due to the depreciation of furniture and fixtures.
Impairment on Exploration and Evaluation Assets
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 impairement amount was based on comparing the carrying value of the assets using the greater of their value in use or their 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, 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 and Gain on Settlement of Debt
The Company recorded net losses for the three months ended November 30, 2012 of $21,921,159, compared with $1,278,336 for the comparative period in 2011. 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 2012 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.
The Company recorded an income tax benefit of $8,148,175 on a net loss before income tax of $21,921,159 for the three months ended November 30, 2012. During the corresponding period ended November 30, 2011, the Company recorded an income tax benefit of $14,029, on a net loss before income tax of $1,278,336. The income tax benefit during the three months ended November 30, 2012 is largely 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 carryforwards as of November 30, 2012 were approximately $28,833,799 million.
Comprehensive Income (Loss)
The Company recorded a comprehensive loss for the three months ended November 30, 2012 of $13,772,984, compared with a comprehensive loss of $1,264,307 for the corresponding period ended November 30, 2011. 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 three months ended November 30, 2012.
Operational Review and Outlook
(Aljubarrota-3 - 42% Working Interest, Zambujal - 72% Working Interest, Cabo Mondego-2 - 70% Working Interest and São Pedro de Muel-2 - 94% Working Interest)
Sorgenia and Rag Joint Venture Activity
The Company along with its joint venture partners, Sorgenia and Rag concluded a 23 well stratigraphic drilling program in the third calendar quarter of 2012 to jointly evaluate the unconventional resource potential of the Lower Jurassic ("Lias") stratigraphic interval. While the cores continue to show encouraging results, complete rock mechanics and geochemical analysis is ongoing. Complete results are expected in the first calendar quarter of 2013.
(Aljubarrota-3 - 42% Working Interest and Torres Vedras-3 - 100% Working Interest)
In June 2012, the Company entered into a definitive farmout agreement (the "Agreement") with Galp. Galp agreed to pay the Company $4.3 million in back costs in addition to their portion of the drilling of the ALC-1 well of approximately $6.15 million to earn 50% of the Company's rights on the Aljuabarrota-3 concession, comprising approximately 300,000 acres, onshore Portugal. Under the terms of the Agreement, Galp will acquire a 50% participating interest in exchange for payment of 50% of Porto's sunk costs in the Aljubarrota-3 concession totaling approximately $4.3 million and payment of their participating interest share (50%) of costs from and after the effective date of the Agreement. The payment of the $4.3 million was subject to conditions precedent, which required that the assignment of interest is to be approved by the Portuguese oil and gas authority, DPEP. The $4.3 million was not recorded in accounts receivable as of August 31, 2012 because some of the conditions precedent entitling the Company to the outstanding amount had not yet been met. The approval of the assignment of interest to Galp and the receipt of the $4.3 million occurred in September 2012 and the $4.3 million was collected in full and offset against the Company's exploration and evaluation asset basis.
The Company commenced the drilling of the Alcobaça #1 ("ALC-1"), its first Presalt well in its Aljubarrota-3 concession onshore Portugal under its joint venture with Galp, in late August 2012. Using interpreted 3-D seismic data acquired from the 160 km2 Aljubarrota 3-D seismic survey completed in 2011, the ALC-1 well targeted a large mapped Triassic four-way closure within the Presalt sandstones beneath the gas charged Lower Jurassic ("Lias") stratigraphic interval and approximately 800 meters high to the ALJ-2 well. Additional shallower targets had also been identified within the mapped four-way closure. The ALC-1 well was drilled to a total depth of approximately 3,000 meters and drilling and testing took approximately 60 days to complete following the setting of a liner per regulatory requirements. The well penetrated approximately 50 net meters of sand and saw good reservoir properties in several intervals, but much of the sands were near the base of the trapped gas column and as such, were deemed non-commercial. The well was plugged and abandoned and the rig was released in December 2012. The total gross well cost was approximately $10.7 million for which Galp is carrying Porto on 50% of the total well cost.
The salt sealing mechanism was shown to be in place and the Presalt charge and migration was confirmed as the sands were found to be gas bearing. Reservoir containment was also demonstrated since there was no breach. All of these factors demonstrated to the partnership that further exploration drilling is necessary in the basin. The Company is continuing technical discussions with Galp regarding the best path forward. As a result, the Company has turned its near term focus to its Lias unconventional resource oil play while Porto and Galp evaluate other parts of the basin where the pre-salt is potentially productive.
Galp now has the option to acquire a 25% working interest in each of the Company's other concessions in exchange for payments totaling no more than 25% of Porto's sunk costs in each concession. Additionally, Galp has the option to become the concession operator.
2012 Work Program
The Company has submitted its 2013 well program to the DPEP which consists of a multi-basin aeromag study further south of the original aeromag study conducted by the Company in 2011, drilling and coring six shallow strategraphic wells in the Company's Aljubarrota-3 concession, drilling two deep Lias proof-of-concept wells or one deep horizontal Lias proof-of-concept well in the Company's Torres Vedras-3 concession, and conducting a 150 km2 2D seismic acquisition in the Company's Sao Pedro de Muel-2 concession. Based on the working interests of Porto and the obligations of the joint venture partners as set out in the respective farmout agreements, the Company anticipates its portion of the costs to be approximately $2.0 million which is expected to be funded by working capital. Approval of the 2013 program by DPEP will successfully conclude the Company's 2012 drilling program requirements.
To view the Company's Quarter End November 30, 2012 Consolidated Financial Statements, related Notes to Consolidated Financial Statements, and Management's Discussion and Analysis, please see the Company's annual 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 1.3 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.
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.For further information:
Heath Cleaver - Chief Financial Officer