Orca Exploration announces its results for the quarter ended 30th June 2007

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

    Quarter Highlights

    -   Incurred a loss before tax of US$0.5 million (Q2 2006: profit before
        tax of US$1.1 million) with funds from operations before working
        capital changes of US$1.3 million (Q2 2006: US$1.3 million). The
        decrease in profitability is primarily the result of an increase in
        costs attributable to the business development activities.

    -   Signed an option agreement with Tower Resources plc that gives Orca
        the opportunity to become a 50% interest holder in the 6,040 square
        kilometers, Exploration Area 5 in Uganda.

    -   Increased Q2 2007 sales of Additional Gas to Dar es Salaam industrial
        customers by 14% to 397 mmscf (an average of 4.4 mmscf/d) compared
        with 347 mmscf in Q2 2006. Average industrial prices remained strong
        at US$8.61/mcf.

    -   Increased Q2 2007 sales of Additional Gas to the power sector by
        1% to 745 mmscf (an average of 8.2 mmscf/d) compared with 739 mmscf
        in Q2 2006, at an average price of US$2.17/mcf (Q2 2006: 2.13/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.

    -   Demonstrated the first vehicle to operate on compressed natural gas
        in Tanzania at the International Trade Fair in July 2007. The Company
        is looking to expand the CNG operations in the course of the next
        18 months.

    -   Continued the installation of an additional 8 kilometers of low
        distribution pipeline to improve security of supply and to hook up to
        four new industrial customers. This line is due to be completed
        during Q3 2007.

    -   Delayed the completion of the drilling of SS-10 because of the
        unexpected mechanical failure of the drill rig. A major rig overhaul
        is in progress and drilling is scheduled to recommence in
        September 2007. The well is currently drilled to 1,689 meters and
        secured at a depth of 1,074 meters. Subsurface geology is as

    -   Announced a private placement to raise 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. Proceeds were received in early
        July 2007.

    Financial and Operating Highlights

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

    Operating revenue          3,021   3,198     (6%)  6,852   5,271     30%
    (Loss)/profit before
     taxation                   (524)  1,080   (149%)    (94)  1,346   (107%)
    Operating netback
     (US$/mcf)                  2.79    2.71      3%    2.35    2.41     (2%)
    Cash and cash equivalents  7,601   2,829    169%   7,601   2,829    169%
    Working capital           (3,050)  2,448   (225%) (3,050)  2,448   (225%)
    ------------------------------------------------- -----------------------
    Shareholders' equity      38,292  17,715    116%  38,292  17,715    116%
    (Loss)/profit per share
     - basic and diluted
     (US$)                     (0.02)   0.03   (167%)  (0.02)   0.03   (167%)
    Funds from operations
     before working capital
     changes                   1,251   1,333     (6%)  2,442   2,004     22%
    Funds per share from
     operations before
     working capital changes
     - basic (US$)              0.05    0.06    (17%)   0.09    0.09       -
    Funds per share from
     operations before
     working capital changes
     - diluted (US$)            0.04    0.05    (20%)   0.09    0.08     12%
    ------------------------------------------------- -----------------------
    Outstanding Shares ('000)

    Class A shares             1,751   1,751       -   1,751   1,751       -
    Class B shares            25,383  21,648     17%  25,383  21,648     17%
    Options                    2,622   1,852     42%   2,622   1,852     42%
    ------------------------------------------------- -----------------------

    Additional Gas sold
     (mmscf) - industrial        397     347     14%     698     577     21%
    Additional Gas sold
     (mmscf) - power             745     739      1%   2,101   1,421     48%
    Average price per mcf
     (US$) - industrial         8.61    8.69     (1%)   8.22    8.27     (1%)
    Average price per mcf
     (US$) - power              2.17    2.13      2%    2.18    1.97     11%
    ------------------------------------------------- -----------------------

    President & CEO's Letter to Shareholders

    In Q2 2007, Orca Exploration Group ("Orca" or the "Company") negotiated
an option to enter into Africa's newest high potential oil play within the
Albertine Graben sedimentary basin in Uganda. Orca has joined forces with
Tower Resources plc ("Tower") to explore Exploration Area 5 ("EA 5") in the
northwest area of the country. In the last two years Uganda has recorded
significant oil finds in the adjacent Lake Albert Rift Basin. The first step
in Orca's and Tower's exploration of EA 5 will be a 250-300 kilometer seismic
programme expected to commence in November 2007.
    To fund the Company's acquisition of new oil and gas exploration and
development opportunities in sub Saharan Africa and to expand the Tanzanian
operations, Orca successfully raised Cdn$34.5 million through a fully
subscribed private placement. The financing was announced in June 2007 and the
funds were received in early July.
    Orca's new Ugandan opportunity meets the standards that the Company had
set for an expansion of its oil and gas exploration and development interests.
These include significant exploration upside in a proven but relatively
immature basin, a low entry cost, manageable risk and the potential to develop
an oil accumulation within a two-year timeframe. Orca continues to assess
other exploration and development opportunities.

    Uganda Exploration

    There is currently significant oil and gas exploration activity in Uganda
following the drilling of five discoveries in the last 18 months by Tullow plc
and Heritage Oil and Gas. Two of these had flow rates of between 12,000 and
14,000 barrels per day. During the next six months, there is expected to be in
excess of 1,000 kilometers of seismic shot by the various operators and eight
wells are planned by the end of 2008. This is an excellent time to be in this
new and fast developing oil province.
    Under the terms of the agreement signed with Tower Resources plc, Orca
Exploration has an option to acquire a 50% working interest in the
6,040 square kilometer EA 5 that lies 200 kilometers north of the two large
discovery wells. In consideration for being granted this option, the Company
will pay 83.33% of the back-in costs incurred by Tower and the cost of the
2007 seismic programme. The total cost to Orca is estimated at between US$5 -
US$6 million.
    If, following the seismic programme, Orca exercises its option to become
a 50% partner with Tower, it can earn a 50% interest in EA 5 in consideration
for paying 83.33% of the costs of two wells subject to a cap of between
US$10 million and US$15 million depending on whether both wells are tested.

    Tanzania Development

    The Songo Songo field remains Orca's core producing asset providing
significant low-risk exploration upside with its two prospects, Songo Songo
North and Songo Songo West. Songo Songo is expected to generate strong cash
flows over the life of the project and management is focused on maximising the
potential of this asset through the full development of both the reserves and
new markets.
    At year end 2006, gross proven and probable reserves ("2P") for the Songo
Songo field on a life-of-licence basis increased by 14% to 648 bcf (2005:
569 bcf). The proportion in which the Company has a financial interest, under
the Songo Songo PSA ("Additional Gas"), increased by 30% to 415 bcf (2005:
320 bcf). Orca is targeting continued increase in these reserves through
diligent monitoring of the reservoir, selective appraisal and exploration
    Increasing the Songo Songo field deliverability to meet the growing power
sector demand for gas is the principal reason for the drilling of the
SS-10 development well. Management intends to maintain sufficient back up
production in the event that there is a failure or reduced production of any
of the current wells and SS-10 provides this comfort. The completion of the
drilling of SS-10 has been delayed because of the unexpected mechanical
failure of the Caroil rig. The well is currently drilled to a depth of
1,689 meters, but the breakdown of the rig's generators and the
underperformance of the mud pumps, led Orca to suspend drilling to allow
repairs to be made. The well is currently secured at a depth of 1,074 meters.
    Since drilling was suspended the rig operator has made significant
modifications to the rig and a detailed audit will be conducted before it
continues with the drilling of SS-10. The drilling has shown the subsurface
geology to be as expected. It is forecast that the rig will re-enter the
SS-10 well in September 2007 once all the remedial work has been conducted to
the satisfaction of the Company and the other service contractors have been
remobilised. The delays do not impact the long-term prospects for the Songo
Songo field and have not interfered with the Company's gas sales.
    Following the successful remedial work on SS-9 in Q1 2007, the existing
five production wells on Songo Songo are capable of delivering 160 mmscf/d
against current production and infrastructure capacity of 70 mmscf/d
(including Protected Gas).
    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 will be
undertaken in the second half of 2007, but drilling is not expected to
commence until 2009 if the Company proceeds with the drilling of two wells in
Uganda in 2008.

    Market Development

    The rapid introduction of gas-fired power generation in Tanzania has
exceeded Orca's expectations. In Q2 2007, TANESCO increased its installed
emergency gas-fired generation to 128 MWs by adding 60 MWs of emergency
generation. When combined with the 42 MWs of generation at the Ubungo Power
Plant, 170 MWs of gas-fired generation in Tanzania had been commissioned to
operate on Additional Gas by 30 June 2007. It is forecast that this will
increase to 310 MWs by year end 2007, with the further additions of the
Dowan's 40 MW emergency plant which was commissioned in August 2007 and the
Wartsila 100 MW plant in October 2007. TANESCO intends to construct an
additional 45 MWs of generation at Tegeta in mid 2008 and to commence the
conversion of the IPTL 100 MW plant to operate on gas at the end of 2008.
    There has been good progress on the negotiations with TANESCO/MEM in
securing long term contracts for this expanded generation capacity. By the end
of 2007, it is forecast that the Company will have signed a 16-year gas supply
contract for 245 MWs of permanent generation (Wartsila 100 MWs, IPTL 100 MWs,
Tegeta 45 MWs) and a separate long term contract for the 42 MW sixth turbine
at Ubungo ("UGT 6"). In addition, new short term contracts will be in place
for the 168 MWs of emergency generation that are expected to be decommissioned
by mid 2009.
    The 245 MWs of permanent generation is forecast to have a maximum demand
of 45 mmscf/d. Current discussions indicate that TANESCO will agree to a 70%
take or pay provision in respect of these volumes. This will lead to a minimum
of 184 bcf being purchased under this contract.
    At Ubungo, UGT 6 has a demand of approximately 9 mmscf/d. It is expected
to operate at an 80% utilisation rate given that the units are first to be
dispatched after the hydro generation. This will lead to 45 bcf being
purchased under this contract.

    Current Gas Sales

    Power and industrial markets continue to develop in line with
expectations, subject to some seasonal variation in volumes. The power sector
volumes are expected to be lower in the quarters where there is significant
rainfall. This was experienced in Q2 2007. Our largest industrial customers
are primarily in the textile sector and consume higher volumes of gas between
July and September when there is a cheap supply of cotton. Quarterly
volatility is expected to reduce as demand for electricity increases and the
Company connects more industrial customers.
    As reported in our Q1 2007 report, the above average rains in January
2007 significantly improved the utilisation rates for the 561 MWs of
Tanzania's installed hydro generation and filled the Mtera dam, which supplies
water to the 80 MW Mtera and the 204 MW Kidatu hydro stations. This combined
with average rains in April and May that fuelled the 277 MWs of 'run of river'
hydros, meant that TANESCO could reduce its off take from the thermal
generation in Q2 2007.
    Total sales of Additional Gas to the power sector averaged 8.2 mmscf/d in
Q2 2007 (Q2 2006: 8.1 mmscf/d). As Tanzania enters the dry season the
utilisation rates of the thermal power plants has increased. Power sector gas
volumes averaged 21.6 mmscf/d in July 2007.
    Sales of Additional Gas to Orca's industrial customers increased 14% to
397 mmscf in Q2 2007 compared with 347 mmscf in Q2 2006. Industrial demand is
forecast to continue to increase over 2007 as Orca constructs additional new
low pressure distribution lines in the Dar es Salaam area. In July 2007 sales
to the industrial sector averaged 4.6 mmscf/d.


    To further expand gas sales Orca is planning, in collaboration with TDPC,
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
    The Company's first CNG initiative in the Dar es Salaam area was the
demonstration of the product on two vehicles at the Dar es Salaam
International Trade Fair in July 2007. This symbolic step was well received in
Tanzania and the Company expects to commence the sale of CNG during 2008.


    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. The latest
forecasts from TANESCO indicate that there will be a demand for additional gas
processing capacity from mid-2008 depending on rainfall levels.
    In Q4 2006, it was agreed that Songas would finance the installation of
two new gas processing trains to increase capacity to 140 mmscf/d. The
engineering design work has been completed and Songas submitted tender
documents for the engineering, procurement and construction contract at the
end of Q2 2007. It is expected that it will take 12 months from the time of
awarding the tender for the new trains to be operational.
    At the same time, Orca has been developing an alternative project that
could increase the gas processing capacity to 105-110 mmscf/d in the short
term. The Company is in discussion with Songas and MEM in respect of this
alternative that would have the advantage of accelerating sales volumes to the
power sector. Additional work is being undertaken to determine the most cost
effective infrastructure configuration to meet forecast peak deliverability
requirements over the next few years.


    The next eighteen months will be a period of significant operational
activity with the potential for very substantial growth. In Uganda, a 2-D
seismic programme will be shot before year end. Once the seismic results have
been assessed, Orca may opt to drill two land wells in 2008. In Tanzania,
SS-10 is expected to be completed by the end of October and several new gas
supply contracts are expected to be signed with the power sector. These
contracts will generate solid cash flows that could then be allocated to
expanding gas reserves in Tanzania by drilling Songo Songo West and Songo
Songo North in 2009.
    Our strengthened oil acquisition and exploration team continues to
evaluate oil projects in sub Saharan Africa with a view to identifying one
further oil opportunity.
    Orca is in a strong financial position with the raising of
Cdn$34.5 million (Gross) through the issuance of 2.5 million Class B shares
shortly after the end of Q2. The time is right to focus on sustained growth
over the next two to three years. We have clear goals, the financial
resources, the employee expertise and determination to succeed.
    We thank our employees and shareholders for their continuing support.

    Peter R. Clutterbuck
    President & CEO

    30 August 2007

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

    (thousands of US dollars      Three months ended        Six months ended
     except per share         30-Jun    31-Mar    30-Jun    30-Jun    30-Jun
     amounts)                   2007      2007      2006      2007      2006
    -----------------------------------------------------  ------------------

    Revenue                    3,021     3,831     3,198     6,852     5,271

    Cost of sales

    Production and
     distribution expenses      (261)     (264)     (197)     (525)     (362)
    Depletion expense           (630)     (915)     (382)   (1,545)     (706)
    -----------------------------------------------------  ------------------
    Gross profit               2,130     2,652     2,619     4,782     4,203

    Other income                  64        97        14       161        30
    Administrative expenses   (2,704)   (2,248)   (1,562)   (4,952)   (2,855)
    Foreign exchange losses      (14)      (71)        9       (85)      (32)
    -----------------------------------------------------  ------------------
    (Loss)/profit before
     taxation                   (524)      430     1,080       (94)    1,346

    Taxation                     (84)     (302)     (420)     (386)     (603)
    -----------------------------------------------------  ------------------
    (Loss)/profit after
     taxation                   (608)      128       660      (480)      743
    -----------------------------------------------------  ------------------
    (Loss)/profit per share

    Basic and diluted (US$)    (0.02)        -      0.03     (0.02)     0.03
    -----------------------------------------------------  ------------------

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

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

    Current assets
    Cash and cash equivalents                      7,601    14,736    20,678
    Trade and other receivables                    4,931     5,713     4,275
    Inventory                                      2,847         -         -
                                                  15,379    20,449    24,953

    Natural gas properties and other equipment    43,413    29,085    18,951
                                                  58,792    49,534    43,904


    Current liabilities
    Trade and other payables                      18,429     9,879     4,523

    Non current liabilities
    Deferred income taxes                          1,694     1,351     1,229
    Deferred additional profits tax                  377       321       263


    Capital stock                                 36,217    34,494    34,469
    Capital reserve                                  317     1,123     1,182
    Accumulated income                             1,758     2,366     2,238
                                                  38,292    37,983    37,889
                                                  58,792    49,534    43,904

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

                                  Three months ended        Six months ended
                              30-Jun    31-Mar    30-Jun    30-Jun    30-Jun
    (thousands of US dollars)   2007      2007      2006      2007      2006
    -----------------------------------------------------  ------------------

    (Loss)/profit after
     taxation                   (608)      128       660      (480)      743
    Adjustments for:
      Depletion and
       depreciation              661       941       410     1,602       761
      Stock-based compensation   799       (59)       96       740       192
      Deferred taxation          343       122       123       465       236
      Deferred additional
       profits tax                56        58        44       114        72
    -----------------------------------------------------  ------------------
                               1,251     1,190     1,333     2,441     2,004
    Decrease (increase) in
     trade and other
     receivables                 782    (1,438)   (2,032)     (656)   (1,214)
    (Increase) in inventory   (2,847)        -         -    (2,847)        -
    Increase in trade and
     other payables            1,939     1,068     1,506     3,007       930
    -----------------------------------------------------  ------------------
    Net cash flows from
     operating activities      1,125       820       807     1,945     1,720
    -----------------------------------------------------  ------------------

    Petroleum and natural
     gas properties
     expenditures            (14,989)  (11,077)   (1,034)  (26,066)   (1,885)
    Proceeds from sale of
     vehicle                       -         2         -         2         -
    Increase/(decrease) in
     trade and other
     payables                  6,611     4,288      (429)   10,899      (322)
    -----------------------------------------------------  ------------------
    Net cash used in
     investing activities     (8,378)   (6,787)   (1,463)  (15,165)   (2,207)
    -----------------------------------------------------  ------------------

    Proceeds from exercise of
     options                     118        25        31       143       118
    -----------------------------------------------------  ------------------
    Net cash flow from
     financing activities        118        25        31       143       118
    -----------------------------------------------------  ------------------
    Decrease in cash and
     cash equivalents         (7,135)   (5,942)     (625)  (13,077)     (369)
    -----------------------------------------------------  ------------------
    Cash and cash equivalents
     at the beginning of
     the period               14,736    20,678     3,454    20,678     3,198
    -----------------------------------------------------  ------------------
    Cash and cash equivalents
     at the end of the period  7,601    14,736     2,829     7,601     2,829
    -----------------------------------------------------  ------------------

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

    (thousands of US dollars)                        Accumulated
                                 Capital     Capital      (loss)/
                                   stock     reserve      income       Total
    Balance as at 1 January 2006  16,237         764        (339)     16,662
    Options exercised                118           -           -         118
    Profit for the period              -           -         743         743
    Stock-based compensation           -         192           -         192
    Balance as at 30 June 2006    16,355         956         404      17,715

    (thousands of US dollars)                        Accumulated
                                 Capital     Capital      (loss)/
                                   stock     reserve      income       Total
    Balance as at 1 January 2007  34,469       1,182       2,238      37,889
    New stock issued               1,605        (945)          -         660
    Options exercised                143           -           -         143
    Loss for the period                -           -        (480)       (480)
    Stock-based compensation           -          80           -          80
    Balance as at 30 June 2007    36,217         317       1,758      38,292

    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

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