Orca Exploration to restate 2013 Annual and 2014 Interim Financial Statements and provide against remaining net TANESCO long-term receivable for 2014

TSX-V: ORC.A, ORC.B

TORTOLA, British Virgin Islands, April 14, 2015 /CNW/ - Orca Exploration Group Inc. ("Orca" or the "Company") today announced that it will restate its 2013 audited consolidated financial statements and 2014 unaudited consolidated interim financial statements for the three, six and nine month periods, due principally to computational errors involving Tanzania income tax from 2005 and through to the third quarter of 2014. The errors were discovered in the course of preparing the Company's consolidated financial statements for the year ended 31 December 2014. As the Songo Songo Production Sharing Agreement ("PSA") keeps the Company whole against any income tax paid in Tanzania, there is no effect on the Company's day-to-day operations as a result of the restatement. On the recommendation of management and the Audit Committee, the Board of Directors made the decision to  (i) restate the results for the year ended 31 December 2013 in conjunction with the upcoming release of the consolidated financial statements for the year ended 31 December 2014 which it expects to file on or before 30 April 2015, and (ii) restate the condensed consolidated interim financial statements for the three, six, and nine month periods ended 31 March, 30 June and 30 September 2014 in conjunction with the filing of condensed consolidated interim financial statements for the corresponding periods in 2015 which it expects to file on or before the deadlines for such filings. All amounts stated in this news release are in US dollars (US$).

The PSA, which governs substantially all of the Company's business in Tanzania, provides a mechanism to keep the Company whole for income taxes paid in Tanzania. Pursuant to the PSA, the Company is reimbursed for all income tax payable on income derived from Petroleum Operations by way of an "adjustment factor", under which the Company is allocated additional Profit Gas of a value equal to the taxes paid/payable, thus reducing the allocation to the Company's partner in the field, the Tanzania Petroleum Development Corporation ("TPDC").  The additional Profit Gas is recovered from TPDC's share of revenues as the tax is paid. Income tax paid in respect of the previous year is added to taxable income and included in the calculation of income tax for the current year. This adjustment factor is determined by grossing up tax payable on the current year income only, prior to inclusion of previous year's taxes paid, to that level of revenue necessary for the Company to remain neutral in the payment of income tax. The computations in question incorrectly included previous year's taxes paid in the gross up calculation, the net effect of which was to overstate reported revenue, deferred tax expense, net profit/(loss) after tax and funds flow from operating activities, as well as tax receivable and deferred income taxes payable. In addition, in Tanzania taxpayers are required to pay at least 80% of the estimated year's taxes in four quarterly installments during the year, with a  final tax payment for the balance owing made the following year after financial statements are completed. The calculation of taxable income incorrectly only included this  final payment, rather than the sum of all of the five payments made for the tax year. The combined effect of these errors was an understatement of taxable income and a cumulative underpayment of tax from 2005 to 31 December 2013 of $3.5 million, which the Company has reported and intends to pay forthwith. The Tanzania Revenue Authority has the right to assess penalties and interest on overdue taxes, which if assessed could be up to $1.6 million and would not be recoverable under the PSA.  An estimate of these penalties and interest has been included in the summary of restatement reflected in the periods for which they relate.   

In addition, the Company will be correcting reported finance income and finance costs previously recognized on overdue trade receivables for 2013 and 2014. Finance income and finance costs in the amount of $2.6 million respectively for the year ended 31 December 2013 and $1.7 million respectively for the nine months ended 30 September 2014 will be eliminated.  As the finance income was fully provided for as finance cost, there is no impact on net profit/(loss) after tax, accounts receivable or cash flows from operating activities for 2013 or the nine months ended 30 September 2014. The Company determined that the recognition of finance income, reflecting interest on amounts overdue from TANESCO, coupled with a full provision of the same amount was in error, as collection was not probable.

The cumulative impact of the income tax errors, including applicable penalties and interest, as at January 1, 2013 results in a decrease in accumulated income from $34.1 million to $31.5 million, a decrease in tax receivable (recoverable from TPDC) from $14.7 million to $12.2 million, an increase in tax payable from $6.3 million to $7.8 million and a decrease in deferred income taxes payable from $20.4 million to $19.0 million.

The cumulative impact of the combined income tax and finance income errors, including applicable penalties and interest, on the 2013 consolidated financial statements results in a decrease of revenue from $54.7 million to $53.5 million, an increase in general and administrative expenses from $15.4 million to $16.2 million, an increase in income tax expense from $1.7 million to $2.2 million, an increase in net loss after tax from $5.5 million to $7.9 million, a decrease in tax receivable (recoverable from TPDC) from $14.6 million to $10.9 million, an increase in the tax payable from $2.0 million to $7.0 million, a decrease in deferred income taxes payable from $12.1 million to $8.3 million, and a decrease in accumulated income from $28.6 million to $23.7 million.  In addition, the errors have no impact on cash flows from operating activities but do result in a decrease in funds flow from operating activities from $39.8 million to $32.4 million and funds flow from operating activities per share from $1.15 to $0.93 basic and diluted respectively.

The cumulative impact of the combined income tax and finance income errors, including applicable penalties and interest,  as at 30 September 2014 and for the nine months then ended results in a decrease of revenue from $47.6 million to $47.0 million, an increase in general and administrative expense from $14.6 million to $14.7 million, an increase in income tax expense from $7.9 million to $8.2 million, a decrease in net profit after tax from $8.5 million to $7.4 million, a decrease in tax receivable (recoverable from TPDC) from $16.0 million to $11.6 million, an increase in tax payable (including penalties and interest)  from $nil to $7.7 million, a decrease in deferred income taxes payable from $12.3 million to $6.3 million, and a decrease in accumulated income from $37.1 million to $31.1 million.  In addition, the errors have no impact on cash flows from operating activities but do result in a decrease in funds flow from operating activities from $28.7 million to $23.6 million and funds flow from operating activities per share from $0.82 to $0.68 basic and diluted respectively.

Summary of restatement (unaudited)

























9 months ended 30 September 2014


Year ended 31 December 2013


As at 1 January 2013

(US$000s except as noted)

As reported

Adjustment

Restated


As reported

Adjustment

Restated


As reported

Adjustment

Restated














Revenue

47,624

(662)

46,962


54,718

(1,236)

53,482





General and administrative expenses

(14,626)

(100)

(14,726)


(15,428)

(735)

(16,163)





Finance Income

1,747

(1,747)

-


2,646

(2,636)

10





Finance Costs

(4,142)

1,747

(2,395)


(28,908)

2,636

(26,272)





Income taxes

(7,872)

(326)

(8,198)


(1,743)

(420)

(2,163)





Net profit/(loss) after tax

8,476

(1,087)

7,389


(5,465)

(2,391)

(7,856)






per share basic and diluted

0.24

(0.03)

0.21


(0.16)

(0.07)

(0.23)


















Tax receivable

15,975

(4,381)

11,594


14,585

(3,719)

10,866


14,692

(2,483)

12,209

Tax payable

-

7,716

7,716


1,958

5,059

7,017


6,322

1,485

7,807

Deferred income taxes

12,313

(6,037)

6,276


12,132

(3,806)

8,326


20,399

(1,387)

19,012

Accumulated income

37,121

(6,059)

31,062


28,645

(4,972)

23,673


34,110

(2,581)

31,529

Working capital

49,618

(12,097)

37,521


27,756

(8,778)

18,978


46,820

(3,968)

42,852














Funds flow from operating activities

28,658

(5,066)

23,592


39,840

(7,446)

32,394






per share basic and diluted

0.82

(0.14)

0.68


1.15

(0.22)

0.93





Cash flows from operating activities

31,993

-

31,993


22,491

-

22,491






per share basic and diluted

0.92

-

0.92


0.65

-

0.65


















Management and the Audit Committee have concluded that the Company's consolidated financial statements as at and for the year ended 31 December 2013 and as at and for the three and nine month periods ended 30 September 2014 as previously published can still be relied upon when read together with this news release. The financial information set out in the table above represents management's best estimate of the effects of the restatement, however, the amounts have yet to be audited. The Company expects to release the restated consolidated financial statements for the year ended 31 December 2013 in connection with the filing of the consolidated financial statements for the year ended 31 December 2014, which it expects to do on or before 30 April 2015. The Company will also restate its 2014 condensed consolidated interim financial statements in connection with the filing of the corresponding 2015 interim periods ended March 31, June 30 and September 30, 2015 which it expects to do on or before the deadline for such filings. Management's Discussion and Analysis ("MD&A") will also be prepared reflecting these changes.

TANESCO net long-term receivable

Unrelated to the 2013 and 2014 restatement items noted above, in connection with the preparation of its 2014 consolidated financial statements, the Company has reassessed the net long-term receivable from TANESCO in light of recent events and circumstances and due to the increased uncertainty associated with the timing and amount of ultimate collection, the Company intends to make a provision against the entire remaining net long-term receivable outstanding which was $27.9 million as at 31 December 2014.  Amounts collected with respect to the long-term receivable in the future will be reflected in earnings when payment is received.   Notwithstanding this provision, the Company and TANESCO continue to operate in accordance with the terms of the Portfolio Gas Supply Agreement whereby natural gas continues to be delivered by the Company and TANESCO payments remain current on current deliveries. This provision against the TANESCO net long-term receivable will not prejudice the Company's rights to payment in full or its ability to pursue collection in accordance with the terms of the agreement with TANESCO.

In conjunction with the filing of consolidated financial statements for the year ended 31 December 2014 and related MD&A, the Company will also file a certification related to its annual filings by each of its Chief Executive Officer and its Chief Financial Officer, as required by National Instrument 52-109 for the year ended 31 December 2014.

Non-GAAP measures

The Company discloses in this news release financial measures that do not have any standardized meaning prescribed under GAAP. These financial measures include "funds flow from operating activities", which is defined for these purposes as cash flows from operating activities (as defined by GAAP) before working capital changes.  Funds flow from operating activities per share basic and diluted is calculated on the basis of the funds flow from operating activities divided by the weighted average number of shares, consistent with the calculation of net income (loss) per share. These are key measures as they demonstrate the Company's ability to generate cash necessary to achieve growth through capital investments. Investors should be cautioned that these measures should not be construed as an alternative to other measures of financial performance as determined in accordance with GAAP. Orca's method of calculating these measures may differ from other companies, and accordingly, they may not be comparable to similar measures used by other companies. Funds flow from operating activities reconciled to cash flows from operating activities is as follows:



9 months ended 30 September 2014


Year ended 31 December 2013

(US$000s)

As reported

Adjustment

Restated


As reported

Adjustment

Restated










Funds flow from operating activities

28,658

(5,066)

23,592


39,840

(7,446)

32,394

Working capital changes

3,335

5,066

8,401


(17,349)

7,446

(9,903)

Cash flows from operating activities

31,993

-

31,993


22,491

-

22,491










Orca Exploration Group Inc.

Orca Exploration Group Inc. is an international public company engaged in natural gas exploration, development and supply in Tanzania through the wholly-owned subsidiary PanAfrican Energy Tanzania Limited ("PanAfrican Energy"), as well as oil and gas appraisal in Italy. Orca trades on the TSX Venture Exchange under the trading symbols ORC.A and ORC.B. PanAfrican Energy is party to the PSA with respect to the Songo Songo Block in Tanzania with TPDC and the Government of Tanzania, and is party to a gas sales agreement, the Portfolio Gas Supply Agreement, respecting Songo Songo natural gas production with TANESCO and TPDC.

Financial reports and other corporate information concerning Orca may be found on the Company's website at www.orcaexploration.com or on the Company's profile on SEDAR at www.sedar.com.

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 Information

This news release contains forward-looking statements and information. More particularly, this news release contains statements and information concerning, but not limited to, the Company's intention to take the steps necessary to correct the 31 December 2013 consolidated financial statements and 2014 consolidated interim financial statements; the Company's intention to pay forthwith the additional taxes due and payable to the Tanzania Revenue Authority; the Company's estimate of potential penalties and interest that could be assessed by the Tanzania Revenue Authority on overdue taxes; the Company's best estimate of the effects of the restatement on the Company's financial statements as at January 1, 2013 and as at and for the periods ended December 31, 2013 and September 30, 2014; the anticipated timing of release of the Company's consolidated financial statements for the year ended 31 December 2014 and the three, six and nine month periods ended in 2015, and related MD&A; and the Company's intention to make a provision in its consolidated financial statements for the year ended 31 December 2014 against the entire remaining net long-term receivable from TANESCO.  Although management believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant uncertainties and contingencies. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. 

These forward-looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond Orca's control, and many factors could cause Orca's actual results to differ materially from those expressed or implied in any forward-looking statements made by Orca, including, but not limited to: the possibility that the audit of the impact of the combined errors results in the magnitude of such errors being different than currently expected; that the Company is unable to file its consolidated financial statements for the year ended 31 December 2014 and the three, six and nine month periods ended in 2015 and related MD&A by the requisite deadlines, which could result in the Company applying for a management cease trade order, or if such an order is not granted, an order is issued ceasing trading in Orca's securities; risk  that the Company will be required to pay additional taxes and penalties; failure to obtain adequate financing; failure to receive current  payments from TANESCO;  the impact of general economic conditions in the areas in which Orca operates; changes in laws and regulations including changes in how they are interpreted and enforced; the lack of availability of qualified personnel or management; obtaining required approvals of regulatory authorities; risks associated with negotiating with foreign governments; inability to access sufficient capital; failure to successfully negotiate agreements; and risk that the Company will not be able to fulfill its obligations. 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 that Orca will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive.

Such forward-looking statements are based on certain assumptions made by Orca in light of its experience and current knowledge of the circumstances, as well as other factors Orca believes are appropriate in the circumstances, including, but not limited to:  the nature and magnitude of the combined errors to be remedied in the Company's financial statements; that the final results of the audit of the impact of the combined errors do not result in the magnitude of such errors being different than currently expected; that the Company will have sufficient cash flow, debt or equity sources or other financial resources required to fund its expenditures and requirements as needed; and other matters. In addition, many of the forward-looking statements contained in this news release are located proximate to assumptions that are specific to those forward-looking statements, and such assumptions should be taken into account when reading such forward-looking statements.

The forward-looking statements contained in this news 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: W. David Lyons, Chairman and Chief Executive Officer, +44-7717-100200, wdlyons@orcaexploration.com; Robert S. Wynne, Chief Financial Officer and Director, +1 (403) 399-8046, RSWynne@orcaexploration.com


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