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

TORTOLA, British Virgin Islands, Nov. 20 /CNW/ - Orca Exploration Group Inc ("Orca Exploration" or the "Company") announces its results for the quarter ended 30 September 2009.

    
    Financial and Operating Highlights

    -------------------------------------------------------------------------
                            Three months ended         Nine months ended
                         30-Sep   30-Sep            30-Sep   30-Sep
                           2009     2008   Change     2009     2008   Change
    -------------------------------------------------------------------------
    Financial (US$
     except where
     otherwise stated)
    Revenue               7,536    7,301       3%   17,480   17,411       0%
    Profit/(loss)
     before taxation      2,682    1,609      67%    4,083   (7,831)     n/m
    Operating netback
     (US$/mcf)             2.17     2.79     (22%)    2.17     2.71     (20%)
    Cash and cash
     equivalents          9,703   11,178     (13%)   9,703   11,178     (13%)
    Working capital      12,147    8,705      40%   12,147    8,705      40%
    Shareholders'
     equity              67,159   64,142       5%   67,159   64,142       5%
    Profit/(loss) per
     share - basic and
     diluted (US$)         0.05     0.03      67%     0.06    (0.32)     n/m
    Funds from
     operations before
     working capital
     changes              4,247    3,773      13%    8,228    7,783       6%
    Funds per share
     from operations
     before working
     capital changes
     - basic (US$)         0.14     0.13       8%     0.28     0.26       8%
    Funds per share
     from  operations
     before working
     capital changes
     - diluted (US$)       0.14     0.12      17%     0.27     0.25       8%
    Net cash flows from
     operating
     activities           1,959      363     440%    5,591    5,765      (3%)
    Net cash flows per
     share from
     operating
     activities - basic
     (US$)                 0.07     0.01     600%     0.19     0.19       0%
    Net cash flows per
     share from
     operating
     activities -
     diluted (US$)         0.06     0.01     500%     0.18     0.19      (5%)
    -------------------------------------------------------------------------
    Outstanding Shares
     ('000)
    Class A shares        1,751    1,751       0%    1,751    1,751       0%
    Class B shares       27,770   27,863       0%   27,770   27,863       0%
    Options               2,797    2,847      (2%)   2,797    2,847      (2%)
    -------------------------------------------------------------------------
    Operating
    Additional Gas sold
     (MMcf) - industrial    581      425      37%    1,554    1,083      43%
    Additional Gas sold
     (MMcf) - power       2,493    2,097      19%    5,756    5,036      14%
    Average price per
     mcf (US$) -
     industrial            9.01    13.29     (32%)    7.96    12.67     (37%)
    Average price per
     mcf (US$) - power     2.41     2.41       0%     2.39     2.37       1%
    -------------------------------------------------------------------------


    Highlights

    -   Increased profit before taxation by 67% to US$2.7 million for the
        quarter (Q3 2008: US$1.6 million).

    -   Increased funds from operations before working capital changes by
        13% to US$4.2 million for the quarter (Q3 2008: US$3.8 million).

    -   Increased working capital by 40% to US$12.1 million (Q3 2008:
        US$8.7 million).

    -   Increased Q3 2009 sales of Additional Gas to Dar es Salaam
        industrial customers by 37% to 581 MMcf or 6.3 MMcfd (Q3 2008:
        425 MMcf or 4.6 MMcfd).

    -   Increased Q3 2009 sales of Additional Gas to the power sector by 19%
        to 2,493 MMcf or 27.1 MMcfd (Q2 2008: 2,097 MMcf or 22.8 MMcfd).

    -   Designed a 140 MMcfd permanent expansion upgrade to the existing
        infrastructure system that processes and transports the gas to Dar es
        Salaam. It will be possible to expand the system to handle up to 200
        MMcfd with the addition of a new onshore pipeline.

    -   Commenced work to identify a jack up rig for the drilling of Songo
        Songo West in 2011.

    -   Re-activated the new venture team to identify two new high impact oil
        opportunities in proven hydrocarbon basins in West Africa and the
        Middle East. Shortly after the quarter end, the Company participated
        in a joint bidding application for an exploration licence.
    

President & CEO's Letter to Shareholders

Orca Exploration reports a positive third quarter. This is the second consecutive quarter in which gas sales and cash flows from operations increased and G & A expenses decreased. Results were also up significantly over the same period in 2008. These encouraging results were achieved despite infrastructure limitations and current relatively low levels of gas fired generation in the country.

Sales of Additional Gas averaged 33.4 MMcfd (3.1 Bcf for the quarter), an increase of 22% on the volumes sold in Q3 2008. Funds flow from operations before working capital changes increased 13% to US$4.2 million compared with US$3.8 million in 2008 and this trend is expected to continue through 2010. The Company currently has working capital of US$12.1 million and cash of US$9.7 million.

Having successfully weathered the global financial storm of the past year, your Company is again ready to seek out new high potential exploration opportunities to compliment the steady growth of our cash flow generating business and exploration potential within Tanzania. The initial focus is on acquiring two oil exploration prospects with our principle areas of interest being West Africa and the Middle East where the Orca new ventures team has excellent technical experience. The Company's strategic criteria for these new opportunities is that they must be in proven hydrocarbon basins, have significant upside and can be drilled within 24 months. In accordance with this strategy the Company has participated in a joint bidding application in relation to an exploration opportunity. We look forward to updating our shareholders on this and other developments in the coming months.

Tanzanian reserves and exploration

The current Songo Songo gas wells continue to perform well and in line with expectations. Based on current simulations, the main Songo Songo field has established adequate reserves to meet an average gas demand of 160 MMcfd (including approximately 40 MMcfd of Protected Gas) with the addition of two new development wells. Highly sensitive downhole gauges installed in the second quarter were successfully pulled from each producing well just after the end of the third quarter and are currently being analyzed in advance of the year end reserves evaluation by McDaniel & Associates Consultants Ltd.

Orca is planning for the exploration drilling of Songo Songo West in 2011. The well will be drilled utilizing a jack up rig and the Company is discussing the possibility of sharing a rig with other operators in Tanzania and Mozambique to reduce mobilization costs. The Songo Songo West prospect has independently assessed mean unrisked resources of 552 Bcf.

Power sector

Tanzania continues to experience electricity blackouts caused by a shortage of generation capacity at a time of increasing demand for electricity. Currently the Tanzanian electricity utility, TANESCO, has 148 MWs of generation operating on Additional Gas. During Q3 2009, these Additional Gas plants were operating at 27.1 MMcfd against a maximum current capacity of approximately 29.0 MMcfd. To address this critical situation, TANESCO will be commissioning a 45 MW plant during December 2009 and is planning to add another 100 MWs by the end of 2010 at the Ubungo power plant in Dar es Salaam.

To address longer term power needs, TANESCO has started planning for the construction of an additional 200 MW power plant at Kinyerezi, Dar es Salaam. This would require the availability of approximately 40 MMcfd of Additional Gas. It is anticipated that the Kinyerezi plant could be operational about the time that the Songas infrastructure expansion is to be completed near the end of 2012. Negotiation of a gas supply contract for this plant is directly linked with the need to expand the infrastructure system.

In Q4 2009 power sector demand for gas is expected to be seasonally reduced to approximately Q2 2009 levels. More rain in the last quarter of each year leads to higher hydro output and lower demand for gas fired generation.

Industrial sector

Sales of industrial gas increased substantially during Q3 to an average of 6.3 MMcfd. This was a 37% increase on the same quarter in 2008, primarily as a result of average sales of 1.5 MMcfd to Tanzania Portland Cement Company ("TPCC"), the owner of the expanded Wazo Hill cement plant in Dar es Salaam. The company shut down kilns 2 and 3 for refurbishment during Q3 and in response to the flooding of cheap cement imports on the Tanzanian market. It is anticipated that one of these kilns will be restarted during the second half of 2010. Sales to the industrial sector are expected to be marginally lower in Q4 2009 due to a seasonal reduction in demand for gas by the textile sector.

Infrastructure

As operator of the Songo Songo gas processing plant, the Company made excellent progress during Q3 2009 in designing a permanent expansion upgrade that will enable 140 MMcfd to be transported through the existing system. The design involves the construction of two new gas processing facilities and the addition of more field and pipeline compression. The owner of the existing system, Songas Limited, has indicated its willingness to finance the project providing it can reach appropriate terms with the energy regulator, EWURA. Orca continues to finance the initial design of the project and to assist Songas in its discussions with EWURA.

The target is to have the expanded infrastructure in place by the end of 2012 when new power plants are expected to be commissioned. With the addition of a new onshore pipeline it will be possible to expand the system to handle up to 200 MMcfd.

If the owners of the infrastructure, Songas Limited, gain confidence that the permanent expansion upgrade will be successful, they are likely to approve a temporary re-rating of the existing system to 105 MMcfd (from a current limitation of 90 MMcfd) during 2010. This will be required to meet the forecast demand for gas.

Financial Results

The Company generated funds flow before working capital changes of US$4.2 million during Q3 2009 which enabled the financing of US$2.0 million of capital expenditures, primarily on CNG and infrastructure development.

Orca was again successful in cutting General and Administrative ("G&A") costs during the quarter. In Q3 2009, this resulted in an effective US$1.2 million reduction in G&A expenses compared with Q3 2008. The Company currently has cash on hand of approximately US$9.7 million and working capital of US$12.1 million. Both are expected to increase in the last quarter of 2009 and operations are expected to generate positive cash flows throughout 2010. New funding will be required for any material new acquisitions.

Outlook

Your Company remains well positioned to generate increasing cash flows in the growing Tanzanian market for natural gas. These internally generated funds will be allocated to finance the relatively low risk Songo Songo West exploration prospect in 2011.

Management assesses that this is the right time for Orca to invest in two high impact oil opportunities in proven hydrocarbon basins in West Africa and/or the Middle East to sit alongside the yielding cash generative asset in Tanzania. As discussed above, we jointly bid for an exploration licence shortly after the quarter end and we look forward to updating our shareholders on any developments in the coming months.

We thank our shareholders, our employees and our partners and particularly the Tanzanian Ministry of Energy and Minerals and the Tanzanian Petroleum Development Corporation for their continued support.

    
    Consolidated Income Statements (unaudited)

    ORCA EXPLORATION GROUP INC.

    ------------------------------------------------------- -----------------
                                              Three months       Nine months
                                                     ended             ended
    (thousands of US dollars except        30-Sep   30-Sep   30-Sep   30-Sep
     per share amounts)                      2009     2008     2009     2008
    ------------------------------------------------------- -----------------

    Revenue                                 7,536    7,301   17,480   17,411

    Cost of sales Production and
     distribution expenses                   (997)    (391)  (1,898)  (1,124)

    Depletion expense                      (1,199)  (1,554)  (2,861)  (3,736)

    Impairment of exploration and
     evaluation assets                          -        -        -   (9,520)
    ------------------------------------------------------- -----------------
                                            5,340    5,356   12,721    3,031

    Administrative expenses                (2,647)  (3,821)  (8,633) (10,834)

    Net financing income/(charges)            (11)      74       (5)     (28)
    ------------------------------------------------------- -----------------
    Profit/(loss) before taxation           2,682    1,609    4,083   (7,831)

    Taxation                               (1,133)    (793)  (2,323)  (1,704)
    ------------------------------------------------------- -----------------
    Profit/(loss) after taxation            1,549      816    1,760   (9,535)
    ------------------------------------------------------- -----------------
    Profit/(loss) per share
    ------------------------------------------------------- -----------------
    Basic and diluted(US$)                   0.05     0.03     0.06    (0.32)
    ------------------------------------------------------- -----------------



    Consolidated Balance Sheets (unaudited)

    ORCA EXPLORATION GROUP INC

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

                                                             30-Sep   31-Dec
    (thousands of US dollars)                                  2009     2008
    -------------------------------------------------------------------------

    ASSETS

    Current assets

    Cash and cash equivalents                                 9,703   10,586

    Trade and other receivables                              11,098   13,196
    -------------------------------------------------------------------------
                                                             20,801   23,782


    Exploration and evaluation assets                           757      648

    Property, plant and equipment                            63,395   60,818
    -------------------------------------------------------------------------
                                                             64,152   61,466
    -------------------------------------------------------------------------
                                                             84,953   85,248
    -------------------------------------------------------------------------

    LIABILITIES

    Current liabilities

    Trade and other payables                                  8,654   14,055

    Non current liabilities

    Deferred income taxes                                     7,833    5,510

    Deferred additional profits tax                           1,307      971
    -------------------------------------------------------------------------
                                                             17,794   20,536

    SHAREHOLDERS' EQUITY

    Capital stock                                            66,329   66,537

    Capital reserve                                           4,610    3,715

    Accumulated (loss)                                       (3,780)  (5,540)
    -------------------------------------------------------------------------
                                                             67,159   64,712
    -------------------------------------------------------------------------
                                                             84,953   85,248
    -------------------------------------------------------------------------



    Consolidated Statements of Cash Flows (unaudited)

    ORCA EXPLORATION GROUP INC

    ------------------------------------------------------- -----------------
                                              Three months       Nine months
                                                     ended             ended
                                           30-Sep   30-Sep   30-Sep   30-Sep
    (thousands of US dollars)                2009     2008     2009     2008
    ------------------------------------------------------- -----------------
    CASH FLOWS FROM OPERATING ACTIVITIES

    Profit/(loss) after taxation            1,549      816    1,760   (9,535)

    Adjustment for:
      Depletion and depreciation            1,230    1,566    2,947    3,782
      Impairment of exploration and
       evaluation assets                        -        -        -    9,520
      Stock-based compensation                188      502      898    2,134
      Deferred income taxes                 1,133      793    2,323    1,704
      Deferred additional profits tax         156      107      336      262
      Interest income                          (9)     (11)     (36)    (84)
    ------------------------------------------------------- -----------------
                                            4,247    3,773    8,228    7,783

    (Increase)/decrease in trade and
     other receivables                     (2,061)  (3,116)   2,098   (2,106)
    (Decrease)/increase in trade and
     other payables                          (227)    (294)  (4,735)      88
    ------------------------------------------------------- -----------------
    Net cash flows from operating
     activities                             1,959      363    5,591    5,765
    ------------------------------------------------------- -----------------
    CASH FLOWS USED IN INVESTING
     ACTIVITIES

    Exploration and evaluation
     expenditures                              (3)    (412)    (109)  (3,051)

    Property, plant and equipment
     expenditures                          (1,990)    (761)  (5,524)  (3,409)

    Interest income                             9       11       36       84

    Increase/(decrease) in trade and
     other payables                           711       53     (666)  (4,724)
    ------------------------------------------------------- -----------------
    Net cash used in investing
     activities                            (1,273)  (1,109)  (6,263) (11,100)
    ------------------------------------------------------- -----------------
    CASH FLOWS USED IN FINANCING
     ACTIVITIES

    Normal course issuer bid                  (55)       -     (211)      (2)
    ------------------------------------------------------- -----------------
    Net cash flow used in financing
     activities                               (55)       -     (211)      (2)
    ------------------------------------------------------- -----------------
    Increase/(decrease) in cash and
     cash equivalents                         631     (746)    (883)  (5,337)
    ------------------------------------------------------- -----------------
    Cash and cash equivalents at the
     beginning of the period                9,072   11,924   10,586   16,515
    ------------------------------------------------------- -----------------
    Cash and cash equivalents at the end
     of the period                          9,703   11,178    9,703   11,178
    ------------------------------------------------------- -----------------



    Statement of Changes in Shareholders' Equity (unaudited)

    ORCA EXPLORATION GROUP INC

    -------------------------------------------------------------------------
                                                            Accumu-
                                                              lated
                                          Capital  Capital  Income/
    (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                    -    2,134        -    2,134

    Normal course issuer bid                   (1)       -        -       (1)

    Loss for the period                         -        -   (9,535)  (9,535)
    -------------------------------------------------------------------------
    Balance as at 30 September 2008        66,537    3,157   (5,552)  64,142
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                                                            Accumu-
                                                              lated
                                          Capital  Capital  Income/
    (thousands of US dollars)               stock  reserve   (loss)    Total
    -------------------------------------------------------------------------

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

    -------------------------------------------------------------------------
    Balance as at 1 January 2009           66,537    3,715   (5,540)  64,712

    Stock-based compensation                    -      898        -      898

    Normal course issuer bid                 (208)      (3)       -     (211)

    Profit for the period                       -        -    1,760    1,760
    -------------------------------------------------------------------------
    Balance as at 30 September 2009        66,329    4,610   (3,780)  67,159
    -------------------------------------------------------------------------
    

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.

SOURCE Orca Exploration Group Inc.

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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Orca Exploration Group Inc.

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