Orca Exploration announces its result for the quarter ended 30 June 2009



    TORTOLA, British Virgin Islands, Aug. 28 /CNW/ - Orca Exploration Group
Inc ("Orca Exploration" or the "Company") announces its results for the
quarter ended 30 June 2009.

    
    Financial and Operating Highlights

    ------------------------------------------------- -----------------------
                                 Three months ended      Six months ended
                              30-Jun  30-Jun          30-Jun  30-Jun
                                2009    2008  Change    2009    2008  Change
    -------------------------------------------------------------------------

    Financial (US$ except
     where otherwise stated)
    Revenue                    5,501   4,826     14%   9,944  10,110     (2%)
    Profit before taxation     1,079  (9,710)    n/m   1,401  (9,440)    n/m
    Operating netback (US$/mcf) 2.17    3.44    (37%)   2.18    2.65    (18%)
    Cash and cash equivalents  9,072  11,924    (24%)  9,072  11,924    (24%)
    Working capital            9,939   6,094     63%   9,939   6,094     63%
    Shareholders' equity      65,477  62,824      4%  65,477  62,824      4%
    Profit/(loss) per share
     - basic and diluted (US$)  0.01   (0.34)    n/m    0.01   (0.35)    n/m
    Funds from operations
     before working capital
     changes                   2,514   1,619     55%   3,981   4,010     (1%)
    Funds per share from
     operations before working
     capital changes -
     basic (US$)                0.09    0.05     80%    0.13    0.03    333%
    Funds per share from
     operations before working
     capital changes -
     diluted (US$)              0.08    0.05     60%    0.13    0.03    333%
    Net cash flows per share
     from operating activities
     basic and diluted (US$)    0.06    0.17    (65%)   0.12    0.15    (20%)
    -------------------------------------------------------------------------
    Outstanding Shares ('000)
    Class A shares             1,751   1,751     (0%)  1,751   1,751     (0%)
    Class B shares            27,788  27,863     (0%) 27,863  27,863     (0%)
    Options                    2,797   2,847     (2%)  2,797   2,847     (2%)
    -------------------------------------------------------------------------

    Operating
    Additional Gas sold
     (MMcf) - industrial         613     336     82%     973     658     48%
    Additional Gas sold
     (MMcf) - power            1,693     956     77%   3,263   2,939     11%
    Average price per mcf
     (US$) - industrial         7.02   12.97    (46%)   7.35   12.27    (40%)
    Average price per mcf
     (US$) - power              2.36    2.93    (19%)   2.37    2.33      2%
    -------------------------------------------------------------------------


    Highlights

    -   Increased profit before taxation to US$1.1 million (Q2 2008: loss
        before taxation US$9.7 million after incurring an impairment of
        US$9.5 million).

    -   14% increase in Orca's Q2 2009 revenues to US$5.5 million (Q2 2008:
        US$4.8 million) despite lower gas prices.

    -   Increased funds from operations before working capital changes by 55%
        to US$2.5 million (Q2 2008: US$1.6 million).

    -   Increased working capital by 63% to US$9.9 million (Q2 2008:
        US$6.1 million).

    -   Increased Q2 2009 sales of Additional Gas to Dar es Salaam industrial
        customers by 82% to 613 MMcf or 6.7 MMcfd (Q2 2008: 336 MMcf or
        3.7 MMcfd).

    -   Increased Q2 2009 sales of Additional Gas to the power sector by 77%
        to 1,693 MMcf or 18.6 MMcfd (Q2 2008: 956 MMcf or 10.5 MMcfd).

    -   Commissioned the CNG mother station, consisting of one CNG
        compressor, a vehicle dispenser and two trailer filling facilities to
        deliver 0.7 MMcfd of compressed natural gas.

    -   Commissioned a feasibility study to assess how to expand the existing
        infrastructure system that processes and transports the gas to Dar es
        Salaam. The objective of the study is to increase the capacity from
        90 MMcfd to a peak of 200 MMcfd in the most cost effective manner.
        The study will be finalised during Q3 2009.
    

    President & CEO's Letter to Shareholders

    Orca Exploration had a good second quarter with the sale of 2.3 Bcf of
Additional Gas. This was the highest volume of gas sold in any quarter since
commercial operations commenced in Tanzania in 2004 and represents a 78%
increase on the volumes sold in Q2 2008. Funds flow from operations increased
55% to US$2.5 million compared with US$1.6 million in Q2 2008. The Company
enjoys solid, stable cash flow from its Tanzanian business, and has a working
capital of US$9.9 million.
    The long term prospects for Orca's Tanzanian project are excellent. We
are confident in the reserves already established, the potential upside in
Songo Songo West and the future increases in demand for natural gas in the
country. We continue to expand our markets for gas and the excellent sales
volumes achieved in Q2 2009 confirm steadily growing demand. The immediate
short term infrastructure issues have been resolved and there are plans in
place to increase throughput capacity to 105 MMcfd. Longer term, your Company
is developing a cost effective solution to permanently increase capacity and
will focus on delivering this project to financial closure over the next 12 -
18 months.
    The Company continues to study ways of monetising the existing gas
reserves in the Songo Songo field. The current focus is on expanding the
capacity of the existing infrastructure system to meet the increasing demand
for gas downstream that is led by the power sector. In the last nine months
the Company, as operator of the gas processing facilities, has been successful
in modifying the production facilities and reaching agreement with the owner,
Songas Limited, to operate the plant at 90 MMcfd. After further inspections of
the units during Q2 2009, Lloyds Register has indicated that it will agree to
certify the plant to operate at 110 MMcfd. Work is in progress to demonstrate
to Songas that the operation of the plant at that level will not put the
facilities at risk. During Q2, the total throughput of the infrastructure
system averaged 59 MMcfd; accordingly there is 31 MMcfd of spare capacity at
current approved operational levels.
    In the event that Songas approves the operation of the gas processing
plant at 110 MMcfd, the pipeline that transports the gas to Dar es Salaam will
need to be serviced to transport 105 MMcfd, with the objective of completing
this work by the end of Q1 2010.
    The Company is currently working with Songas to design a system expansion
that will initially enable 140 MMcfd to be transported through the existing
infrastructure. The design involves the addition of two new gas processing
trains, and field and pipeline compression in an integrated system to maximise
the potential of the existing system without resorting to the construction of
new pipelines. Songas has indicated that it is interested in financing this
expansion. The target is to have an expanded system in place by the end of Q2
2012 when new power plants are currently expected to be commissioned. It is
likely that a new application will have to be submitted by Songas and approved
by the energy regulator, EWURA before any notice to proceed can be given.

    Tanzanian reserves and exploration

    The Songo Songo gas field continues to perform well and in line with
expectations. All wells have been utilised during the last quarter with the
majority of the gas being produced from SS-5. Highly sensitive downhole gauges
are due to be pulled from each well during Q4 2009 and will be analysed in
advance of the year end evaluation by McDaniel & Associates Consultants
Limited.
    During Q2 2009, the design for connecting the SS-10 well to the gas
processing facilities was completed. The cost of the hook up is forecast to be
US$1.2 million and is scheduled to be completed by the end of Q1 2010.
    Planning commenced in Q2 for the acquisition of a single transitional
zone seismic line taking advantage of the fact that a seismic crew were
operating in the area of Songo Songo Island. The seismic will be acquired in
Q3 2009 for approximately US$0.3 million and will consist of 5 kilometers of
offshore, 3 kilometers across the island and 1 kilometer across a shallow
reef. This information will facilitate planning for the drilling of the next
deviated well around the time that the infrastructure is expanded and sales
volumes increase as new power plants are commissioned.

    Power sector

    The Tanzanian electricity utility, TANESCO is currently entering a
transitional phase. The emergency gas fired generation that was introduced in
2006 (Dowans 120 MWs and Aggreko 48 MWs) is now being replaced by permanent
generation capacity. As a result, Tanzania currently has 148 MWs of generation
operating on Additional Gas compared to a capacity of 210 MWs at this time
last year. During Q2 2009, the Additional Gas plants were operating at 18.6
MMcfd with a maximum capacity of approximately 29.0 MMcfd. Provided there is
no material downtime at the gas fired generation power plants, demand is
expected to increase in Q3 2009 as the hydro electricity output declines.
    TANESCO is in the process of testing an additional 45 MWs of permanent
generation at Tegeta in Dar es Salaam and this is expected to be operational
in the latter part of Q4 2009 or Q1 2010. In addition, TANESCO has tendered
for a new 100 MW power plant to be located at Ubungo in Dar es Salaam close to
existing gas infrastructure, with the objective of it being operational at the
end of 2010. This plant, along with the existing gas fired generation, will be
supplied by Orca with Additional Gas under the Portfolio Gas Sales Agreement
that was initialed in June 2008. TANESCO has now agreed with all the material
terms and our agreement has been updated to take into account the change in
generation capacity mix and infrastructure development considerations. The
agreement will be submitted during Q3 2009 to the energy regulator, EWURA for
review.
    TANESCO has started planning for the construction of an additional 200 MW
power plant at Kinyerezi, Dar es Salaam which would require approximately 40
MMcfd. Negotiation of a Kinyerezi power plant gas supply contract is
intrinsically linked with the need to expand the infrastructure system.
Discussions have commenced concerning the supply of gas to these units. It is
anticipated that the plant could be operational on or around the time that the
Songas infrastructure expansion is complete at the end of 2012.

    Industrial sector

    Industrial volumes increased substantially during Q2 to an average of 6.7
MMcfd. This represented an 82% increase on the same quarter in 2008. This
increase was primarily the result of average sales of 2.5 MMcfd to Tanzania
Portland Cement Company ("TPCC"), the owner of the expanded Wazo Hill cement
plant in Dar es Salaam. The newly installed US$100 million Kiln 4 was tested
for the majority of the quarter with TPCC maintaining all three of its kilns
until kiln 4 was commissioned in July. Kiln 4 is expected to consume an
average of 2.0 MMcfd for the remainder of the year. With the flooding of cheap
cement imports on the Tanzanian market in the last few months, TPCC will shut
down kilns 2 and 3 and refurbish them until an increase in demand for TPCC
cement warrants the kilns being brought back on production.
    Overall sales to the industrial sector are expected to increase
marginally in Q3 2009 as demand for gas by the textile sector increases to
offset a small loss in demand by TPCC.

    Compressed Natural Gas (CNG)

    In July 2009, the inauguration of the new CNG "Mother Station" in Dar es
Salaam was performed by the Minister for Energy and Minerals: William Ngeleja.
The Mother Station consists of a compressor, a vehicle refueling dispenser and
two trailer filling facilities. Three "Daughter Stations" are also being added
to supply Dar es Salaam industries, hotels and one institution beyond the
reach of Orca's low pressure gas pipeline. CNG sales are forecast to be modest
during Q3 2009, but are expected to increase as the industries and hotels that
have signed contracts for the CNG, make the necessary modifications to their
equipment.

    Financial Results

    The Company generated funds flow before working capital changes of US$2.5
million during Q2 2009 which enabled the financing of US$1.7 million of
capital expenditures, primarily on the CNG project and the upgrade of the
pressure reduction station at Wazo Hill.
    Orca continues to be successful in cutting General and Administrative
("G&A") costs. In Q2 2009, this resulted in an effective US$0.9 million
reduction in G&A expenses compared with Q2 2008. This saving was achieved
despite an increase in personnel in Tanzania to manage growth in downstream
gas activities and customers. The Company currently has cash on hand of
approximately US$9.1 million and working capital of US$9.9 million. Both are
expected to increase through the remainder of 2009.

    Outlook

    Your Company is the leader in developing Tanzania's natural gas resources
and has established an excellent team in Tanzania to develop, produce and
market the gas reserves. The demand for cleaner, lower cost fossil fuels
continues to grow.
    The Company remains well positioned and thanks its shareholders, its
partners in Tanzania and in particular the Ministry of Energy and Minerals and
TPDC for their continued support.

    
    Consolidated Income Statements (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)                   2009      2008      2009      2008
    ----------------------------------------------------- -------------------
    Revenue                              5,501     4,826     9,944    10,110
    Cost of sales
    Production and distribution
     expenses                             (596)     (457)     (901)     (733)
    Depletion expense                     (909)     (776)   (1,662)   (2,182)
    Impairment of exploration and
     evaluation assets                       -    (9,520)        -    (9,520)
    ----------------------------------------------------- -------------------
                                         3,996    (5,927)    7,381    (2,325)
    Administrative expenses             (2,941)   (3,918)   (5,986)   (7,013)
    Net financing income/(charges)          24       135         6      (102)
    ----------------------------------------------------- -------------------
    Profit/(loss) before taxation        1,079    (9,710)    1,401    (9,440)
    Taxation                              (700)     (498)   (1,190)     (911)
    ----------------------------------------------------- -------------------
    Profit/(loss) after taxation           379   (10,208)      211   (10,351)
    ----------------------------------------------------- -------------------
    Profit/(loss) per share
    -------------------------------------------------------------------------
    Basic and diluted (US$)               0.01     (0.34)     0.01     (0.35)
    ----------------------------------------------------- -------------------



    Consolidated Balance Sheets (unaudited)

    ORCA EXPLORATION GROUP INC.

                                                            30-Jun    31-Dec
    (thousands of US dollars)                                 2009      2008
    -------------------------------------------------------------------------
    ASSETS
    Current assets
    Cash and cash equivalents                                9,072    10,586
    Trade and other receivables                              9,037    13,196
    -------------------------------------------------------------------------
                                                            18,109    23,782

    Exploration and evaluation assets                          754       648
    Property, plant and equipment                           62,635    60,818
    -------------------------------------------------------------------------
                                                            63,389    61,466
    -------------------------------------------------------------------------
                                                            81,498    85,248
    -------------------------------------------------------------------------

    LIABILITIES
    Current liabilities
    Trade and other payables                                 8,170    14,055
    Non current liabilities
    Deferred income taxes                                    6,700     5,510
    Deferred additional profits tax                          1,151       971
    -------------------------------------------------------------------------
                                                            16,021    20,536
    SHAREHOLDERS' EQUITY
    Capital stock                                           66,369    66,537
    Capital reserve                                          4,437     3,715
    Accumulated (loss)                                      (5,329)   (5,540)
    -------------------------------------------------------------------------
                                                            65,477    64,712
    -------------------------------------------------------------------------
                                                            81,498    85,248
    -------------------------------------------------------------------------



    Consolidated Statements 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)             2009      2008      2009      2008
    ----------------------------------------------------- -------------------
    CASH FLOWS FROM OPERATING ACTIVITIES
    Profit/(loss) after taxation           379   (10,208)      211   (10,351)
    Adjustment for:
      Depletion and depreciation           940       794     1,717     2,216
      Impairment of exploration and
       evaluation assets                     -     9,520         -     9,520
      Stock-based compensation             414       978       710     1,632
      Deferred income taxes                700       498     1,190       911
      Deferred additional profits tax       92        65       180       155
      Interest income                      (11)      (28)      (27)      (73)
    ----------------------------------------------------- -------------------
                                         2,514     1,619     3,981     4,010
    (Increase)/decrease in trade and
     other receivables                    (718)       70     4,159     1,009
    (Decrease)/increase in trade and
     other payables                        (68)    2,877    (4,508)      383
    ----------------------------------------------------- -------------------
    Net cash flows from operating
     activities                          1,728     4,566     3,632     5,402
    ----------------------------------------------------- -------------------
    CASH FLOWS USED IN INVESTING
     ACTIVITIES
    Exploration and evaluation
     expenditures                          (67)   (2,220)     (106)   (2,639)
    Property, plant and equipment
     expenditures                       (1,682)   (1,631)   (3,534)   (2,648)
    Interest income                         11        28        27        73
    Decrease in trade and other
     payables                             (628)   (1,340)   (1,377)   (4,777)
    ----------------------------------------------------- -------------------
    Net cash used in investing
     activities                         (2,366)   (5,163)   (4,990)   (9,991)
    ----------------------------------------------------- -------------------
    CASH FLOWS USED IN FINANCING
     ACTIVITIES
    Normal course issuer bid                 -         -      (156)       (2)
    ----------------------------------------------------- -------------------
    Net cash flow used in financing
     activities                              -         -      (156)       (2)
    ----------------------------------------------------- -------------------
    Decrease in cash and cash
     equivalents                          (638)     (597)   (1,514)   (4,591)
    ----------------------------------------------------- -------------------
    Cash and cash equivalents at
     the beginning of the period         9,710    12,521    10,586    16,515
    ----------------------------------------------------- -------------------
    Cash and cash equivalents at
     the end of the period               9,072    11,924     9,072    11,924
    ----------------------------------------------------- -------------------



    Statement of Changes in Shareholders' Equity (unaudited)

    ORCA EXPLORATION GROUP INC.

    -------------------------------------------------------------------------
                                       Capital   Capital Accumulated
    (thousands of US dollars)            stock   reserve     (loss)    Total
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Balance as at 1 January 2008        66,538     1,023     3,983    71,544
    Stock-based compensation                 -     1,632         -     1,632
    Normal course issuer bid                (1)        -         -        (1)
    Loss for the period                      -         -   (10,351)  (10,351)
    -------------------------------------------------------------------------
    Balance as at 30 June 2008          66,537     2,655    (6,368)   62,824
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                       Capital   Capital Accumulated
    (thousands of US dollars)            stock   reserve     (loss)    Total
    -------------------------------------------------------------------------
    Note                                     4
    -------------------------------------------------------------------------
    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)
    Profit for the period                    -         -       211       211
    -------------------------------------------------------------------------
    Balance as at 30 June 2009          66,369     4,437    (5,329)   65,477
    -------------------------------------------------------------------------
    

    Forward Looking Statements

    This disclosure contains certain forward-looking estimates that involve
substantial known and unknown risks and uncertainties, certain of which are
beyond Orca Exploration's control, including the impact of general economic
conditions in the areas in which Orca Exploration 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 Exploration'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 Exploration will
derive therefrom.





For further information:

For further information: Nigel A. Friend, CFO, +255 (0)22 2138737,
nfriend@orcaexploration.com; Peter R. Clutterbuck, CEO, +44 (0) 7768 120727,
prclutterbuck@orcaexploration.com or visit the Company's web site at
www.orcaexploration.com


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