Orca Exploration reports increased natural gas sales from Tanzanian operations and Q3 results



    TORTOLA, British Virgin Islands, Nov. 29 /CNW/ - Orca Exploration Group
Inc ("Orca Exploration" or the "Company") announces its results for the
quarter ended 30 September 2007.

    Quarter Highlights

    
    -   Generated a profit before tax of US$3.0 million (Q3 2006:
        US$1.3 million) with funds from operations before working capital
        changes of US$3.7 million (Q3 2006: US$1.6 million). The increase in
        profitability is primarily the result of an increase in sales volumes
        to the power sector.

    -   Satisfied the conditions precedent for the option agreement with
        Tower Resources plc that gives Orca the opportunity to become a 50%
        interest holder in the 6,040 square kilometer Exploration Area 5 in
        Uganda.

    -   Shortly after the quarter end, successfully completed the SS-10 well,
        which was tested at rates up to 52 mmscf/d. It is forecast that the
        well will be able to flow at a rate in excess of 55 mmscf/d once on
        production. The well is expected to be one of the best producers in
        the field and takes the deliverability of the six wells in the field
        to greater than 200 mmscf/d.

    -   Increased Q3 2007 sales of Additional Gas to the power sector by 165%
        to 1,974 mmscf (an average of 21.5 mmscf/d) compared with 744 mmscf
        in Q3 2006, at an average price of US$2.19/mcf (Q3 2006:
        US$1.69/mcf).

    -   Sold 442 mmscf of Additional Gas to Dar es Salaam industrial
        customers or an average of 4.8 mmscf/d. This represented a 10%
        decrease on Q3 2006 when 491 mmscf was sold. However, average
        industrial prices increased by 11% to an average of US$9.58/mcf (Q3
        2006: US$8.63/mcf)

    -   Advanced negotiations with the Tanzanian Ministry of Energy and
        Minerals and TANESCO for the supply of gas to 245 MWs of gas fired
        generation for a period of 16 years.

    -   Completed the installation of an additional 8 kilometers of low
        pressure distribution pipeline to improve security of supply. Four
        new industrial customers are in the process of being connected from
        this new line.

    -   Submitted a proposal to Songas that would enable the gas processing
        capacity to be increased by approximately 25 - 35 mmscf/d. It is
        estimated that the proposal would take less than six months to
        implement and could be introduced before the third and fourth gas
        processing trains are installed by Songas.

    -   Completed the private placement that raised gross proceeds of
        Cdn$34.5 million through the issuance of 2.5 million Class B shares
        at a price of Cdn$13.80 per share.


    Financial and Operating Highlights

                               Three months ended        Nine months ended
                           30-Sep    30-Sep          30-Sep    30-Sep
                             2007      2006  Change    2007      2006  Change
    -----------------------------------------------  ------------------------
    Financial (US$'000
     except where
     otherwise stated)

    Revenue                 6,363     3,835    66%   13,215     9,106    45%
    Profit before taxation  3,012     1,309   130%    2,918     2,655    10%
    Operating netback
     (US$/mcf)               2.30      2.89   (20%)    2.32      2.58   (10%)
    Cash and cash
     equivalents           27,436     4,580   499%   27,436     4,580   499%
    -----------------------------------------------  ------------------------
    Working capital        20,938     3,298   535%   20,938     3,298   535%
    Shareholders' equity   70,996    18,676   280%   70,996    18,676   280%
    Profit per share
     - basic (US$)           0.07      0.03   133%     0.05      0.06   (17%)
    Profit per share
     - diluted (US$)         0.06      0.03   100%     0.05      0.06   (17%)
    Funds from operations
     before working
     capital changes        3,718     1,572   137%    5,998     3,546    69%
    Funds per share from
     operations before
     working capital
     changes - basic (US$)   0.13      0.07    86%     0.22      0.15    47%
    Funds per share from
     operations before
     working capital
     changes - diluted
     (US$)                   0.12      0.06   100%     0.20      0.14    43%
    -----------------------------------------------  ------------------------
    Outstanding Shares
     ('000)
    Class A shares          1,751     1,751     -     1,751     1,751     -
    Class B shares         27,881    21,658    29%   27,881    21,658    29%
    Options                 2,622     2,042    28%    2,622     2,042    28%
    -----------------------------------------------  ------------------------
    Operating

    Additional Gas sold
     (mmscf) - industrial     442       491   (10%)   1,140     1,068     7%
    Additional Gas sold
     (mmscf) - power        1,974       744   165%    4,075     2,165    88%
    Average price per mcf
     (US$) - industrial      9.58      8.63    11%     8.75      8.27     6%
    Average price per mcf
     (US$) - power           2.19      1.69    30%     2.19      1.87    17%
    -----------------------------------------------  ------------------------
    

    President & CEO's Letter to Shareholders

    Orca's increased power sector gas sales, combined with stronger
industrial gas prices in Tanzania, generated a before tax profit of
US$3.0 million, up 130% over Q3 2006 (US$1.3 million). This is primarily a
result of the Tanzanian power sector being ahead of schedule in installing
gas-fired generation. There are now 310 MWs of commissioned plants that
require Additional Gas supplied by Orca as feedstock - a testament to the
speed with which TANESCO and the Government of Tanzania have acted to increase
power generation capacity.
    To address this increasing power demand, the Company has invested in the
Songo Songo field development over the course of 2007. In Q1 2007, the Company
conducted remedial work on the offshore well, SS-9 and shortly after the end
of Q3, completed the SS-10 development well, which was tested at rates up to
52 mmscf/d. As a result of this work, Songo Songo field deliverability has
increased by approximately 80 mmscf/d to in excess of 200 mmscf/d.
    In Uganda, the 300-kilometer seismic acquisition programme is due to
commence in December 2007 on Orca option lands. The data will be processed and
interpreted during Q1 2008. It is anticipated that the decision on whether or
not to drill two wells in Uganda will be made by 30 April 2008 with drilling
proceeding in the second half of the year. Work is already underway to
contract a suitable drill rig in country.
    Exploration in Uganda by other energy companies continues to show
positive results. In the south, Tullow Resources plc has had significant
success with the drill bit and its reserves are reported to be approaching the
level at which it will be economically viable to install a 1,200 kilometer
export pipeline to Mombasa. This would mark a significant milestone in the
development of the Ugandan oil reserves and would help to monetise any oil
discovered by Orca.
    To meet Orca's vigorous exploration, development and acquisition
objectives, the Company successfully raised Cdn$34.5 million during Q3 2007
through a fully subscribed private placement. These funds have enabled the
Company to fund the successful completion of the SS-10 well and to have
sufficient funds for the Ugandan exploration efforts in 2008. There is good
reason to look forward to the next year with considerable confidence.

    Tanzania Development

    The rapid monetisation of the Songo Songo field remains a key focus for
Orca. During Q3 2007, there were positive developments in increasing well
deliverability, expanding the infrastructure and negotiating the power supply
contract.
    Increasing the Songo Songo field deliverability to meet the growing power
sector demand for gas was the principal reason for the drilling of the SS-l0
development well and the remedial work on the offshore well, SS-9. There is
now sufficient back up deliverability to meet demand over the next few years
in the event of any failure or reduced production from the current wells.
    The SS-10 well was the first well to be drilled on the Songo Songo field
in 25 years. In the course of drilling this well a modern suite of logs was
acquired and will be interpreted during the course of Q4 2007. This
information, combined with the retrieval of further downhole pressure readings
in December 2007, will be the principal data used to update Orca's year end
reserve report.
    To further increase Songo Songo reserves, the Company is also planning to
drill an appraisal well in the northern portion of the field ("Songo Songo
North") and an exploration well approximately 2 kilometers west of the
existing field ("Songo Songo West"). Planning for these wells is underway, but
drilling is not expected to commence until 2009 if the Company proceeds with
the drilling of two wells in Uganda in 2008.

    Infrastructure

    High-pressure distribution system

    During Q3 2007, sales of Additional Gas were occasionally limited by the
current infrastructure capacity. The current configuration of the gas
processing plant on Songo Songo Island limits the supply of gas to Dar es
Salaam to 70 mmscf/d. This constraint is expected to continue through Q4 2007
and Q1 2008.
    In Q3 2007, Orca submitted proposals to Songas that would enable the gas
processing capacity to be increased by approximately 25 - 35 mmscf/d within
six months. This would involve upgrading the existing trains and utilising a
bypass. The Company expects to get clearance on these initiatives from Songas
during Q4 2007 and has commenced the purchase of some of the longer lead-time
items. The total cost of this capacity increase, which would accelerate the
sales volumes to the power sector, is estimated at approximately
US$0.7 million.
    Over the longer term, Songas has made an application to Tanzania's
regulatory authority, EWURA, for the installation of two new gas processing
trains to increase throughput capacity to more than 140 mmscf/d. During Q3
2007 the tender documents for the engineering, procurement and construction
contract were received and all parties are working on the project agreements
to enable Songas to award the contract. It is expected that construction will
take 12 months from the time of awarding the tender to the new trains being
operational.
    Additional work is being undertaken to determine the best means of
increasing the capacity of the pipeline infrastructure system from its current
estimated capacity of 105 mmscf/d to the full capacity of the gas processing
trains (once the third and fourth train are operational).

    Low-pressure distribution system

    Shortly after the end of Q3 2007, Orca completed a further 8 kilometer
extension of its low-pressure distribution system that now consists of
35 kilometers. In addition, a second pressure reduction station was also
installed. This provides the Company greater security of deliverability to its
existing customers and allows for growth. Four customers adjacent to the
expanded pipeline are expected to be connected during Q1 2008.
    The second pressure reduction station will also meet the needs of the
8 kilometer extension to the Mwenge area that will be constructed in 2008 once
contracts averaging 1 mmscf/d are signed with the local industries.

    Market Development

    The rapid expansion of gas-fired power generation in Tanzania continues
to exceed Orca's expectations. During Q3, Dowans commissioned 40 MWs of
emergency generation and shortly after the quarter end, TANESCO commissioned
the TANESCO Wartsila 100 MW power plant. This increased the total installed
generation using Additional Gas to 310 MWs. Combined with the 150 MWs of
generation that is operating on Protected Gas from the Songo Songo field,
there is now more electricity being generated from gas fired generation than
hydro.
    During Q3 2007, TANESCO reached agreement for the purchase of an
additional 45 MWs of generation at Tegeta. It is forecast that the plant will
be operational in Q3 2008. It is understood that discussions to convert IPTL
to gas operation are continuing.
    There have been detailed discussions with TANESCO/MEM to secure long-term
contracts for this expanded generation capacity. It is expected that the
principal terms will be agreed by the end of Ql 2008 covering the supply of
gas to 245 MWs of permanent generation (TANESCO Wartsila 100 MWs, IPTL 100 MWs
(or alternate) and Tegeta 45 MWs) for a 16-year period. The 245 MWs of
permanent generation are forecast to have a maximum demand of 45 mmscf/d.
    A separate long-term contract for the 42 MW sixth turbine at Ubungo ("UGT
6") is expected to be concluded within a similar timeframe. UGT 6 has a demand
of approximately 7.0 mmscf/d at an 80% utilisation rate.

    Current Gas Sales

    There was a significant improvement in gas sales volumes during Q3 2007
since utilisation of the gas fired generation increased as the hydro capacity
fell during the dry season. The industrial sales also picked up as they
entered their most active period of the year. Whilst the general trend is for
an increase in gas sales, quarterly swings caused by the use of the hydro
generation are anticipated. This seasonal volatility may be eliminated if
demand increases to the point where more gas fired generation can be
base-loaded.
    Total sales of Additional Gas to the power sector increased 165% to
1,974 mmscf or an average of 21.5 mmscf/d (Q3 2006: 8.1 mmscf/d). With the
commissioning of an additional 268 MWs of gas fired generation in the past
year, TANESCO can now utilise gas and preserve the water in the Mtera dam for
284 MWs of peak requirements.
    In Q3 2007, sales of Additional Gas to Orca's industrial customers
decreased 10% to 442 mmscf (Q3 2006: 491 mmscf) due to a temporary shortage of
demand. However, in value terms, Q3 sales to the industrial sector increased
due to an 11% improvement in the industrial sales price to US$9.58/mcf (Q3
2006: US$8.63/mcO. Sales volumes are expected to increase in 2008 as more
customers are connected to the expanded ringmain system and the extension to
Mwenge area is constructed.
    It is forecast that there will be a slight decrease in the gas-fired
generation volumes in Q4 2007 as the rains in November and December improve
the performance of the 277 MWs of run-of-river hydros. There will also be a
small seasonal decrease in the demand by the textile industry.

    CNG

    To further expand gas sales, Orca is planning to commence the sale of
Compressed Natural Gas ("CNG") to industrial customers and to markets that are
not located near the existing distribution pipeline. These new CNG markets
include all of the major hotels in Dar es Salaam and Zanzibar.
    This initiative will play a major part of the Company's marketing
activity in 2008 and capital will be made available to establish a small
compression unit and distribution vehicles. The feasibility of transporting
CNG to other markets outside of Dar es Salaam will also be investigated.
    Orca has also commissioned a CNG pilot for vehicle fuels, which has been
a successful operation. Plans are in progress to expand CNG supply for
transportation use.

    Outlook

    In Tanzania the success of the SS-10 well and the progress that is being
made on the gas contracts to the power sector encourages Orca to allocate more
capital over the next 18 months to increase infrastructure capacity and
further develop high value markets.
    In Uganda, management will focus on finding oil reserves. A 300 kilometer
2-D seismic programme will be shot over the next three months by IMC
Geophysics International Limited and will be processed and interpreted by the
end of Q1 2008. Orca can then determine whether to proceed with the drilling
of two wells during 2008. The Company continues to evaluate existing and new
Ugandan data and is encouraged by the findings to date.
    We thank our employees and shareholders for their continuing support.

    Peter R. Clutterbuck
    President & CEO
    29 November 2007


    
    Consolidated Income Statements (unaudited)
    ORCA EXPLORATION GROUP INC. (formerly EastCoast Energy Corporation)


    (thousands of
     US dollars                   Three months ended       Nine months ended
     except per               30-Sep    30-Jun    30-Sep    30-Sep    30-Sep
     share amounts)             2007      2007      2006      2007      2006
    -----------------------------------------------------  ------------------
    Revenue                    6,363     3,021     3,835    13,215     9,106
    Cost of sales
    Production and
     distribution expenses      (311)     (261)     (211)     (836)     (573)
    Depletion expense         (1,334)     (630)     (435)   (2,879)   (1,141)
    -----------------------------------------------------  ------------------
    Gross profit               4,718     2,130     3,189     9,500     7,392
    Administrative expenses   (2,568)   (2,704)   (1,846)   (7,520)   (4,701)
    Net financing income/
     (charges)                   862        50       (34)      938       (36)
    -----------------------------------------------------  ------------------
    Profit/(loss) before
     taxation                  3,012      (524)    1,309     2,918     2,655
    Taxation                  (1,070)      (84)     (500)   (1,456)   (1,103)
    -----------------------------------------------------  ------------------
    Profit/(loss) after
     taxation                  1,942      (608)      809     1,462     1,552
    -----------------------------------------------------  ------------------
    Profit/(loss) per share
    Basic (US$)                 0.07     (0.02)     0.03      0.05      0.06
    Diluted (US$)               0.06     (0.02)     0.03      0.05      0.06
    -----------------------------------------------------  ------------------



    Consolidated Balance Sheets (unaudited)
    ORCA EXPLORATION GROUP INC. (formerly EastCoast Energy Corporation)

                                                   As at     As at     As at
                                                  30-Sep    30-Jun    31-Dec
    (thousands of US dollars)                       2007      2007      2006
    -------------------------------------------------------------------------
    ASSETS

    Current assets

    Cash and cash equivalents                     27,436     7,601    20,678
    Trade and other receivables                    8,040     4,931     4,275
    Assets held for sale                           2,847     2,847         -
    -------------------------------------------------------------------------
                                                  38,323    15,379    24,953

    Natural gas properties and other equipment    52,893    43,413    18,951
    -------------------------------------------------------------------------
                                                  91,216    58,792    43,904
    -------------------------------------------------------------------------

    LIABILITIES

    Current liabilities
    Trade and other payables                      17,385    18,429     4,523

    Non current liabilities
    Deferred income taxes                          2,346     1,694     1,229
    Deferred additional profits tax                  489       377       263

    SHAREHOLDERS' EQUITY

    Capital stock                                 66,556    36,217    34,469
    Capital reserve                                  740       317     1,182
    Accumulated income                             3,700     1,758     2,238
    -------------------------------------------------------------------------
                                                  70,996    38,292    37,889
    -------------------------------------------------------------------------
                                                  91,216    58,792    43,904
    -------------------------------------------------------------------------



    Consolidated Statements of Cash Flows (unaudited)
    ORCA EXPLORATION GROUP INC. (formerly EastCoast Energy Corporation)

                                  Three months ended       Nine months ended
    (thousands of             30-Sep    30-Jun    30-Sep    30-Sep    30-Sep
     US dollars                 2007      2007      2006      2007      2006
    -----------------------------------------------------  ------------------
    CASH FLOWS FROM
     OPERATING ACTIVITIES
    Profit/(loss) after
     taxation                  1,942      (608)      809     1,462     1,552

    Adjustments for:
      Depletion and
       depreciation            1,375       661       462     2,977     1,224
      Stock-based
       compensation              324       799       142     1,064       334
      Deferred taxation          652       343       124     1,117       360
      Deferred additional
       profits tax               112        56        52       226       123
      Interest income           (273)      (64)      (17)     (434)      (47)
      Foreign exchange gain     (414)        -         -      (414)        -
    -------------------------------------------------------------------------
                               3,718     1,187     1,572     5,998     3,546
    (Increase)/decrease
     in trade and other
     receivables              (3,109)      782       423    (3,765)     (791)
    (Increase) in assets
     held for sale                 -    (2,847)        -    (2,847)        -
    Increase in trade
     and other payables        1,683     1,939       501     4,690     1,431
    -----------------------------------------------------  ------------------
    Net cash flows from
     operating activities      2,292     1,061     2,496     4,076     4,186
    -----------------------------------------------------  ------------------

    CASH FLOWS USED IN
     INVESTING ACTIVITIES
    Petroleum and natural
     gas properties
     expenditures            (10,756)  (14,989)     (749)  (36,822)   (2,634)
    Interest income              273        64        17       434        47
    Proceeds from sale
     of vehicle                    -         -         -         2         -
    Increase/(decrease)
     in trade and other
     payables                 (2,727)    6,611       (23)    8,172      (345)
    -----------------------------------------------------  ------------------
    Net cash used in
     investing activities    (13,210)   (8,314)     (755)  (28,214)   (2,932)
    -----------------------------------------------------  ------------------
    CASH FLOWS FROM
     FINANCING ACTIVITIES
    Repurchase of shares         (27)        -         -       (27)        -
    Shares issued, net of
     share issue costs        30,366         -         -    30,366         -
    Foreign exchange gain        414         -         -       414         -
    Options exercised              -       118        10       143       128
    -----------------------------------------------------  ------------------
    Net cash flow from
     financing activities     30,753       118        10    30,896       128
    -----------------------------------------------------  ------------------
    Increase (decrease)
     in cash and cash
     equivalents              19,835    (7,135)    1,751     6,758     1,382
    -----------------------------------------------------  ------------------
    Cash and cash
     equivalents at the
     beginning of the period   7,601    14,736     2,829    20,678     3,198
    -----------------------------------------------------  ------------------
    Cash and cash
     equivalents at the
     end of the period        27,436     7,601     4,580    27,436     4,580
    -----------------------------------------------------  ------------------



    Statement of Changes in Shareholders' Equity (unaudited)
    ORCA EXPLORATION GROUP INC. (formerly EastCoast Energy Corporation)

    (thousands of US dollars)                               Accum-
                                                            ulated
                                       Capital   Capital    (loss)/
                                         stock   reserve    income     Total
    -------------------------------------------------------------------------
    Balance as at 1 January 2006        16,237       764      (339)   16,662
    Options exercised                      128         -         -       128
    Profit for the period                    -         -     1,552     1,552
    Stock-based compensation                 -       334         -       334
    -------------------------------------------------------------------------
    Balance as at 30 September 2006     16,365     1,098     1,213    18,676
    -------------------------------------------------------------------------


    (thousands of US dollars)                               Accum-
                                       Capital   Capital    ulated
                                         stock   reserve    income     Total
    -------------------------------------------------------------------------
    Balance as at 1 January 2007        34,469     1,182     2,238    37,889
    Options exercised                      143         -         -       143
    Shares issued, net of share
     issue costs                        31,971      (810)        -    31,161
    Stock-based compensation                 -       368         -       368
    Normal course issuer bids              (27)        -         -       (27)
    Profit for the period                    -         -     1,462     1,462
    -------------------------------------------------------------------------
    Balance as at 30 September 2007     66,556       740     3,700    70,996
    -------------------------------------------------------------------------
    

    Orca has an option to participate in this exciting new petroleum province
adjacent to the Uganda onshore lake Albert Rift basin. The Company has joined
forces with Tower Resources at 50% equity to jointly explore for oil in Uganda
onshore Exploration Area 5 ("EA 5"). Recently both London-based Tullow plc
("Tullow") and Calgary-based Heritage Oil Corporation ("Heritage") have been
successful in finding significant hydrocarbons within the basin. Orca has
identified a number of significant leads similar to the prospects further to
the south. These leads will be further evaluated with the acquisition of
seismic data beginning in December 2007. Depending on the results of the
seismic program, Orca has the option to participate in the drilling of 2
exploratory wells.

    Exploration History

    Uganda's Albertine Graben is a largely underexplored sedimentary basin.
Its petroleum potential in terms of thickness of sediment, presence of source
rocks, reservoirs and seals was established in 2006 and early 2007 through the
exploration successes of Heritage and Tullow. The sediment thickness evidently
exceeds 5,000 meters in the deepest parts of the basin. Oil seeps have been
known within the Albertine Graben for some time and were identified over a
large area indicating the existence of a working petroleum system in the
region. The presence of reservoir units within the sedimentary cover of the
Tertiary age was proven by three wells that Heritage drilled in 2003/2004.
    There have been 11 exploratory and appraisal wells drilled in Uganda
since 2003.

    
                                     Status/Flow rates            Exploration
                 Year     Operator   bbl/day                             Area
    -------------------------------------------------------------------------
    Turaco 1     2003     Heritage   Non discovery                         3A
    Turaco 2     2004     Heritage   Non discovery                         3A
    Turaco 3     2004     Heritage   Non discovery                         3A
    Mputa 1      2006     Tullow     Suspended oil, 1,120 b/d               2
    Mputa 2      2006     Tullow     Suspended oil, logged not tested       2
    Waranga 1    2006     Tullow     Suspended oil,12,000 b/d max
                                      aggregate                             2
    Nzizi 1      2006     Tullow     Logged not tested                      2
    Kingfisher
     1 + 1A      2007     Heritage   Suspended oil,13,893 b/d max
                                      aggregate                            3A
    Nzizi 2      2007     Tullow     P&A oil + 14 mmscf/d of gas            2
    Mputa 3      2007     Tullow     Suspended oil, 1,968 bopd              2
    Mputa 4      2007     Tullow     Suspended oil, logged not tested       2
    -------------------------------------------------------------------------
    

    Future industry activity in Uganda

    Significant seismic and drilling activity is planned in Uganda by all
operators during the course of the next 18 months. It is estimated that at
least 8 wells will be drilled. Two rigs are currently operating in country and
a third rig is expected in the near future. Additionally, 1,100 kilometers of
seismic will be acquired by year end.

    EA 1

    EA 1 is jointly held by Tullow and Heritage and is operated by Heritage.
    2-D Seismic is currently being acquired. The original 500 kilometer
programme has been extended due to the positive results from the initial
172 kilometer survey in the southern part of the block. There are currently
plans to drill two to three exploration wells commencing in the first half of
2008.

    EA 2

    Tullow holds 100% of EA 2.
    Tullow has drilled three exploration wells in 2007, namely the Nzizi 2
well with the Dafora-F200 rig and a further two appraisal wells Mputa 3 and
Mputa 4. All three wells have encountered oil. The Mputa 4 was the third and
final well to be drilled as part of the Kaiso-Tonya appraisal programme.
    A rig (Nabors 221) has been contracted to drill the significant Ngassa
prospect (same rig as will be used to drill the Kingfisher-2 well in EA 3 A).
This well is scheduled to be completed by the end of 2007.

    EA 3 A

    EA 3 A is jointly held by Tullow and Heritage (50% each) and is operated
by Heritage.
    Heritage is currently conducting a 325 kilometer 3-D seismic programme
over the Kingfisher and Pelican prospects. Initial interpretation has
indicated that the prospects are structurally uncomplicated and approximately
70 and 40 square kilometers in size. Following the full interpretation of the
survey, Heritage has contracted the Nabors 221 rig to drill the Kingfisher-2
well (scheduled to spud in Q1 2008). Heritage is targeting deeper objectives
that require a larger capacity rig than was used on Kingfisher-1 (3,195
meters).

    EA 5

    Tower Resources plc ("Tower") holds 100% of EA 5 subject to Orca
Exploration's 50% option rights.
    EA 5 is at the northern end of the Albertine Graben. It lies
approximately 200 kilometers north of the 12,000 bbl/d Tullow discovery at
Waranga and south of the Unity and Heglig oil fields in the Muglad rift basin
in Sudan.
    To date here has been no seismic acquired and no wells drilled on EA 5. A
regional gravity survey and subsequent analysis has identified that EA 5
contains a sedimentary sequence within the Albertine Graben system, within
which prospective structures have been indicated. This part of the Albertine
Graben is called the Rhino Camp Basin. The Semliki Basin further to the south
where the discoveries have been found was prognosed from a similar type of
gravity survey and was later confirmed to exist following the seismic
conducted by Heritage in the late 1990s.
    In the next 18 months, Tower will acquire 300 kilometers of 2-D seismic
and drill 2 exploration wells to a depth of 2,500 meters and 1,500 meters.
There will be at least two rigs in country in this period that could
potentially be utilised.

    Export routes

    Current provisional estimates are that a 500,000 bbl/day pipeline could
be required to export the crude to international markets. It is estimated that
this would cost approximately US$1.5 billion and is considered commercially
viable. It is forecast that this could be completed between 2010 and 2013
based on the current drilling activities in Uganda and the drilling successes
over the last 2 years. If exportable accumulations are discovered, it is
anticipated that a 1,200 kilometer pipeline will be constructed from the oil
fields to the Kenyan coast at Mombasa, via Kampala and Nairobi. There is an
existing pipeline that runs along this route taking oil products to Uganda.

    
    EA 5 PSA terms

    The principal terms of the PSA, as amended are as follows:

    -   The First Exploration Period ends on 27 March 2008. By this time,
        200 kilometers of seismic must be acquired, processed and
        interpreted. This will be satisfied by the acquisition of 300
        kilometers of 2-D seismic in the last quarter of 2007.

    -   Under the terms of the Second Exploration Period, minimum exploration
        of two wells and one contingent well is required to be drilled by 27
        March 2010.

    -   The Third Exploration Period ends on 27 March 2012. By this time an
        additional exploration well and one contingent well has to be
        drilled.

    -   Cost recovery is permitted for up to 50% of the oil production after
        deduction of the Royalty. Carry forward provisions apply.

    -   The Royalty ranges from 5% on volumes up to 2,500 bbls/day to 12.5%
        above 7,500 bbls/day.

    -   The profit sharing percentage of the licensee decreases as production
        increases. The range is 53% for 0 - 5,000 bbls/day and 25% for
        production in excess of 40,000 bbls/day.

    -   The Government of Uganda has a 20% back in right.

    Terms of Orca's agreement with Tower Resources

    The principal terms of the agreement are as follows:

    -   The agreement is structured as an option with Tower to earn a 50%
        interest in EA 5.

    -   In consideration for granting the option, Orca will fund 83.33% of
        certain back costs and a 2-D seismic programme of 300 kilometers,
        beginning in December 2007, subject to a maximum cost to the Company
        of US$5-6 million.

    -   On completion of the interpretation of the seismic data expected
        during Q1 2008, Orca will have the exclusive right to acquire a 50%
        working licence interest in return for funding 83.33% of two
        exploration wells forecast to commence mid 2008. The carry is capped
        at a maximum cost to the Company of between US$10 million and
        US$15 million depending on whether the wells are tested.

    -   In the event that Orca exercises its option to become a 50% partner,
        Tower will continue to remain operator under the licence for a period
        of three years. However, Orca will assume management responsibility
        for all drilling activities.

    -   Orca has put a guarantee in place at the outset to cover
        US$15 million of expenditure.

    Uganda statistics

    Size of country
    -------------------------------------------------------------------------
    Size of country                                236,000 square kilometers
    Population                                     30 million
    Population growth rate (1990 - 2005)           3.2%
    Inflation rate (1990 - 2005)                   8%
    GDP growth rate                                3.2%
    Oil imports 2006                               US$300 - US$400 million
    Gross National income per capita               US$280
    

    Country Information and Governance

    Uganda is a landlocked country in central East Africa with a population
of approximately 30 million. It borders Tanzania, Kenya, Sudan, Democratic
Republic of the Congo and Rwanda. Agriculture is the most important economic
sector with coffee accounting for the bulk of Uganda's export revenues. The
country has substantial mineral resources including large deposits of copper
and cobalt. Uganda's official language is English.
    Uganda is a presidential republic. General elections are held every five
years. The elected President is both head of state and head of government.
Executive power is exercised by the government. Legislative power is vested in
both the government and a 303-member National Assembly that includes 217
elected and 86 appointed representatives (who represent the interests of
specific populations e.g. women, persons with disabilities and others). The
system is parliamentary with voting for all citizens over 18.
    Presidential elections were held in February 2006 and President Yoweri
Museveni (of the National Resistance Movement Party) was elected for a third
term. The current Prime Minister is Apolo Nsibambi. The Cabinet is appointed
by the President from among elected legislators.
    Uganda is a member of the East Africa Community with Tanzania and Kenya
that aims to support closer cooperation between the countries including free
trade.

    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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