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

                      ---------------------------- --------------------------
                      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
    ---------------------------------------------- --------------------------
    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%
    ---------------------------------------------- --------------------------
    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%
    ---------------------------------------------- --------------------------
    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%
    ---------------------------------------------- --------------------------
    

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
    ------------------------------------------------------- -----------------
    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)
    ------------------------------------------------------- -----------------
                                            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
    ------------------------------------------------------- -----------------
    ------------------------------------------------------- -----------------
    Profit before taxation                  4,092    1,079    7,365    1,401
    Taxation                               (1,484)    (700)  (2,817)  (1,190)
    ------------------------------------------------------- -----------------
    ------------------------------------------------------- -----------------
    Profit and comprehensive income         2,608      379    4,548      211
    ------------------------------------------------------- -----------------
    ------------------------------------------------------- -----------------

    Profit per share
    ------------------------------------------------------- -----------------
    Basic (US$)                              0.09     0.01     0.15     0.01
    Diluted (US$)                            0.08     0.01     0.15     0.01
    ------------------------------------------------------- -----------------



    Consolidated Statement of Financial Position (unaudited)

    ORCA EXPLORATION GROUP INC

                                                            -------- --------
    As at                                                    30-Jun   31-Dec
    (thousands of US dollars)                                  2010     2009
    -------------------------------------------------------------------------
    ASSETS
    Current assets
    Cash and cash equivalents                                18,319   14,543
    Trade and other receivables                              13,098    9,181
    -------------------------------------------------------------------------
                                                             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
    -------------------------------------------------------------------------

    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
    -------------------------------------------------------------------------
                                                             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
    -------------------------------------------------------------------------



    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)
    ------------------------------------------------------- -----------------
    Net cash flows from operating
     activities                             3,472    1,728    4,939    3,632
    ------------------------------------------------------- -----------------
    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)
    ------------------------------------------------------- -----------------
    Net cash used in investing activities    (670)  (2,366)  (1,163)  (4,990)
    ------------------------------------------------------- -----------------
    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)
    ------------------------------------------------------- -----------------
    Cash and cash equivalents at
     the beginning of the period           15,517    9,710   14,543   10,586
    ------------------------------------------------------- -----------------
    Cash and cash equivalents at the
     end of the period                     18,319    9,072   18,319    9,072
    ------------------------------------------------------- -----------------



    Statement of Changes in Shareholders' Equity (unaudited)

    ORCA EXPLORATION GROUP INC

    -------------------------------------------------------------------------
                                                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
    -------------------------------------------------------------------------
    Balance as at 30 June 2009     66,369       4,437        (5,329)  65,477
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                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
    -------------------------------------------------------------------------
    Balance as at 30 June 2010     66,267       5,343         2,332   73,942
    -------------------------------------------------------------------------
    

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.

SOURCE Orca Exploration Group Inc.

For further information: For further information: W. David Lyons, Chairman and CEO, +44-7717-100-200, wdlyons@orcaexploration.com; Nigel A. Friend, CFO, +255 (0)22 2138737, nfriend@orcaexploration.com


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