Orca Exploration announces its results for the three months ended 31 March 2009

    TORTOLA, British Virgin Islands, May 29 /CNW/ - Orca Exploration Group
Inc ("Orca Exploration" or the "Company") announces its results for the three
months ended 31 March 2009.

    Financial and Operating Highlights

     Three months ended                             31-Mar   31-Mar
                                                      2009     2008   Change
    Financial (US$'000 except where otherwise stated)
    Revenue                                          4,443    5,284     (16%)
    Profit before taxation                             322      270      19%
    Operating netback (US$/mcf)                       2.18     2.21      (1%)
    Cash and cash equivalents                        9,710   12,521     (22%)
    Working capital                                  9,154    8,297      10%
    Shareholders' equity                            64,684   72,053     (10%)
    (Loss) per share - basic and diluted (US$)       (0.01)   (0.00)     n/m
    Funds from operations before working capital
     changes                                         1,458    2,391     (39%)
    Funds per share from operations before working
     capital changes  - basic and diluted (US$)       0.05     0.08     (38%)
    Outstanding Shares ('000)
    Class A shares                                   1,751    1,751      (0%)
    Class B shares                                  27,788   27,863      (0%)
    Options                                          2,797    2,847      (2%)

    Additional Gas sold - industrial (MMscf)           360      322      12%
    Additional Gas sold - power (MMscf)              1,570    1,983     (21%)
    Average price per mcf - industrial (US$)          7.91    11.55     (32%)
    Average price per mcf - power (US$)               2.39     2.05      17%


      -  Increased capacity of the gas processing plant on Songo Songo Island
         by 29% to 90 MMscfd. Acting as operator, Orca made equipment and
         facilities changes approved by the owner of the facilities, Songas
         Limited. The capacity of the plant was re-rated by Lloyds Register
         to 55 MMscfd per train, with a plant limit of 90 MMscfd in January
         2009 and it is forecast that the additional capacity will be
         utilised in the second half of 2009.

      -  Increased profit before taxation by 19% to US$0.32 million (Q1 2008:
         US$0.27 million) despite a 16% decrease in revenue. Funds from
         operations before working capital changes were US$1.5 million (Q1
         2008: US$2.4 million).

      -  Increased Q1 2009 sales of Additional Gas to Dar es Salaam
         industrial customers by 12% to 360 MMscf or 4.0 MMscfd (Q1 2008: 322
         MMscf or 3.5 MMscfd). Given the decline in world oil prices, average
         industrial prices were down 32% at US$7.91/mcf (Q1 2008: US
         $11.55/mcf), but remained robust over the period, and are largely
         protected by a floor gas price which shields sales from low oil

      -  Q1 2009 sales of Additional Gas to the power sector declined by 21%
         to 1,570 MMscf or 17.4 MMscfd (Q1 2008: 1,983 MMscf or 21.8 MMscfd)
         primarily due to insufficient transmission capacity from the new 102
         MW Wartsila power plant during the quarter. The average price for
         the gas increased 17% to US$2.39/mcf (Q1 2008: US$2.05/mcf) in line
         with long term pricing agreements.

      -  Commenced the sale of Additional Gas to the Wazo Hill cement plant
         ahead of schedule. It is expected that sales to Wazo Hill will
         average 2 MMscfd from Q2 2009. Potentially sales could exceed 5
         MMscfd during 2009 if the owners of the plant, Tanzanian Portland
         Cement Company, determine that there is sufficient demand to operate
         all its kilns simultaneously.

      -  Connected 4 new industrial customers and added 1 kilometre to the
         low pressure gas distribution system at Dar es Salaam.

      -  Continued construction of CNG facilities in Dar es Salaam,
         consisting of a compressor, a vehicle refuelling dispenser and two
         trailer filling facilities at the "Mother Station" and three
         "Daughter Stations" for the supply of some industries, hotels and
         one institution at a cost of US$2.5 million. The CNG facilities are
         expected to be operational at the end of Q2 2009 and lead to 0.7
         MMscfd of CNG sales.

    President & CEO's Letter to Shareholders

    Medium and longer term demand for Additional Gas produced by Orca
Exploration from Tanzania's Songo Songo field continues to show steady and
significant growth. Prospects for a sustained increase in gas demand by both
the power and industrial sectors remain excellent.
    Currently the maximum demand for Orca's Additional Gas by the power
sector is approximately 28 MMscfd. This is expected to increase by 32% to 37
MMscfd in Q4 2009 when the new 45 MW Tegeta power plant becomes operational.
    The number of Orca's industrial customers in the Dar es Salaam area
continues to grow with 4 new customers connected in Q1 2009. This brings the
total number of industrial customers connected to 24, and a total of 31
customers contracted. New markets are also being developed to reach beyond
Orca's low pressure gas distribution system at Dar es Salaam with the
construction of new CNG compression and distribution facilities that are
scheduled to be in operation by the end of Q2 2009.
    To ensure that Orca is positioned to meet these demands, Orca took
decisive steps in Q1 2009 to increase the capacity of the infrastructure that
processes and transports gas from the Songo Songo field to Dar es Salaam. The
overall system capacity has now been increased by 29% to 90 MMscfd. This
enables the Company to sell and deliver up to 45 MMscfd of Additional Gas
compared with 25-30 MMscfd before the system capacity was increased. This
capacity increase removes a major constraint that had previously limited the
Company's ability to fully meet gas demand on some occasions during 2008.
    Orca is currently undertaking additional work on the gas processing
facilities to increase capacity to 110 MMscfd by the end of 2009. Each of the
gas processing trains has been tested and certified to 55 MMscfd by Lloyds
Register, but there is a plant limit of 90 MMscfd . The Company is
simultaneously conducting pipeline tests and engineering studies to assess
whether the high pressure pipeline that transport the gas from the Songo Songo
field to Dar es Salaam has sufficient capacity to handle these additional
processed volumes.
    Since 2006, Songas Limited has been looking to increase the capacity of
its infrastructure by installing two additional gas processing trains. In the
event that the planned expansion by Songas does not proceed, Orca is
developing a contingency plan to expand the gas processing capability and
pipeline capacity to 200 MMscfd. This production level would be consistent
with the forecast peak demand that could be met with current 2P Songo Songo
reserves. If Orca decided to proceed with the contingency plan, the Company
would seek third party finance for the expansion, with the objective of having
the project in place by 2012.

    Power sector

    The Tanzanian electricity utility, TANESCO is currently entering a
transitional phase. The emergency gas fired generation that was introduced in
2006 (Dowans 120 MWs and Aggreko 48 MWs) is now being replaced by permanent
generation capacity. As a result, Tanzania currently has 148 MWs of generation
operating on Additional Gas compared to 210 MWs at this time last year. This
is insufficient to meet current electricity demand and it is anticipated that
there will be load shedding during the latter part of 2009. The situation will
become acute if power transmission constraints with the existing facilities
persist. In Q1 2009 the Wärtsilä 102 MW power plant was only able to operate
at approximately 50% capacity.
    TANESCO has taken steps to rectify the short term power generation
shortfall. An additional 45 MWs of permanent generation is under construction
at Tegeta in Dar es Salaam and is expected to be operational in Q4 2009. In
addition, TANESCO has tendered for a new 100 MW power plant with the objective
of it being operational in 2010. This plant, along with the existing gas fired
generation, will be supplied with Additional Gas under the Portfolio Gas Sales
Agreement with Orca that was initialled in June 2008. This agreement is
currently being updated to take into account the change in generation capacity
mix and infrastructure development considerations.
    Over the longer term the Tanzanian Power Sector Master Plan is projecting
annual growth in electricity demand of 7% to 10% per annum. This equates to
approximately 100 MWs of new generation being added annually until 2016. To
meet this demand, TANESCO has started planning for the construction of a 200 -
250 MW power plant at Kinyerezi, Dar es Salaam. If built, this plant would
require approximately 40 - 50 MMscfd. Negotiation of the Kinyerezi power plant
gas supply contract is expected to commence in the second half of 2009, once
the initialed contracts are signed. TANESCO has indicated that it is targeting
Kinyerezi being operational by 2012.

    Industrial sector

    The Company has commenced selling gas to Tanzania Portland Cement Company
("TPCC"), the owner of the expanded Wazo Hill cement plant in Dar es Salaam.
The new US$100 million Kiln 4 is expected to be fully operational in June 2009
and will consume a minimum of 2 MMscfd for the remainder of the year. Orca is
currently discussing the possibility of further gas sales to TPCC later in
2009 to enable all of its kilns to operate simultaneously before two of the
kilns are shut down for major maintenance.
    Orca continues to increase the number of its industrial customers. During
Q1 2009, 4 new industrial customers were connected adding 0.2 MMscfd of demand
and increasing the total customers connected to 24, with a total of 31
customers contracted. The low pressure pipeline system was extended by 1
kilometer to connect these customers and now totals 43 kilometers.
    Due to the diversified nature of Orca's customers, the current global
recession is not expected to have a significant impact on 2009 industrial

    Compressed Natural Gas (CNG)

    Major work was completed in Q1 2009 on the new CNG "Mother Station" in
Dar es Salaam consisting of a compressor, a vehicle refueling dispenser and
two trailer filling facilities. Three "Daughter Stations" are also being added
to supply some Dar es Salaam industries, hotels and one institution beyond the
reach of Orca's low pressure gas pipeline. The CNG facilities, being
constructed at a cost of US$2.5 million, are expected to be operational at the
end of Q2 2009 and lead to 0.7 MMscfd of CNG sales. CNG deliveries outside Dar
es Salaam will commence with supply to the Mikocheni region, followed by
supply to the City of Morogoro.

    Financial Results

    The Company generated funds flow before working capital changes of US$1.5
million during Q1 2009 despite lower gas sales to the power sector and a
decrease in the price of gas to industrial customers. Increases are expected
to continue through 2009 as the Wazo Hill cement plant consumes more gas and
Tanzania enters its dry season during which gas fired power generation
    Orca is also cutting General and Administrative ("G&A") costs. In Q1
2009, this resulted in a reduction in G&A expenses despite there being an
increase in personnel in Tanzania to manage growth in downstream gas
activities and customers.
    The Company currently has cash on hand of approximately US$9.7 million
and working capital of US$9.2 million.


    During 2009, Orca's management will focus on monetising the Company's
proven (1P) Additional Gas reserves that increased by 26% at the end of 2008
to 389 Bcf (2P reserves: 491 Bcf).
    Your Company is a leader in developing Tanzania's natural gas reserves
and in ventures that are increasing Tanzania's domestic energy self-reliance.
Despite economic uncertainties in other parts of the world, this is the right
time to be developing and marketing hydrocarbon resources in Tanzania and in
sub-Saharan Africa. The demand for cleaner, lower cost fossil fuels is
growing, the Songo Songo gas production infrastructure continues to be
developed and our team of dedicated employees is working to add additional gas
    As always, management is aware that Orca Exploration's vitality is always
dependent on our skilled and dedicated employees and our loyal shareholders.
We look forward to continued growth and profitability over the course of 2009.

    Consolidated Income Statements (unaudited)
                                                          Three months ended
                                                             31-Mar   31-Mar
    (thousands of US dollars except per share amounts)         2009     2008

    Revenue                                                   4,443    5,284

    Cost of sales

    Production and distribution expenses                       (305)    (276)

    Depletion expense                                          (753)  (1,406)
                                                              3,385    3,602
    Administrative expenses                                  (3,045)  (3,095)

    Net financing charges                                       (18)    (237)
    Profit before taxation                                      322      270

    Taxation                                                   (490)    (413)
    (Loss) after taxation                                      (168)    (143)
    (Loss) per share
      Basic  and diluted (US$)                                (0.01)   (0.00)

    Consolidated Balance Sheets (unaudited)
                                                             31-Mar   31-Dec
    (thousands of US dollars)                                  2009     2008

    Current assets

    Cash and cash equivalents                                 9,710   10,586

    Trade and other receivables                               8,319   13,196
                                                             18,029   23,782

    Exploration and evaluation assets                           687      648
    Property, plant and equipment                            61,893   60,818
                                                             62,580   61,466
                                                             80,609   85,248


    Current liabilities

    Trade and other payables                                  8,875   14,055

    Non current liabilities

    Deferred income taxes                                     6,000    5,510

    Deferred additional profits tax                           1,050      971
                                                             15,925   20,536

    Capital stock                                            66,369   66,537

    Capital reserve                                           4,023    3,715

    Accumulated (loss)                                       (5,708)  (5,540)
                                                             64,684   64,712
                                                             80,609   85,248

    Consolidated Statements of Cash Flows (unaudited)
                                                          Three months ended
                                                             31-Mar   31-Mar
    (thousands of US dollars)                                  2009     2008
      (Loss) after taxation                                    (168)    (143)
    Adjustment for :
      Depletion and depreciation                                777    1,422
      Stock-based compensation                                  296      654
      Deferred income taxes                                     490      413
      Deferred additional profits tax                            79       90
      Interest income                                           (16)     (45)
                                                              1,458    2,391
    Decrease in trade and other receivables                   4,877      939
    Decrease in trade and other payables                     (4,431)  (2,494)
    Net cash flows from operating activities                  1,904      836

    Exploration and evaluation expenditures                     (39)    (419)

    Property, plant and equipment expenditures               (1,852)  (1,017)

    Interest income                                              16       45

    Decrease in trade and other payables                       (749)  (3,437)
    Net cash used in investing activities                    (2,624)  (4,828)
    Normal course issuer bid                                   (156)      (2)
    Net cash flow used in financing activities                 (156)      (2)
    Decrease in cash and cash equivalents                      (876)  (3,994)
    Cash and cash equivalents at the beginning
     of the period                                           10,586   16,515
    Cash and cash equivalents at the end of the period        9,710   12,521

    Statement of Changes in Shareholders' Equity (unaudited)


                                     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               -        654          -       654

    Normal course issuer bid              (1)        (1)         -        (2)

    Loss for the period                    -          -       (143)     (143)
    Balance as at 31 March 2008       66,537      1,676      3,840    72,053

                                     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               -        296          -       296
    Normal course issuer bid            (168)        12          -      (156)
    Loss for the period                    -          -       (168)     (168)
    Balance as at 31 March 2009       66,369      4,023     (5,708)   64,684

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,

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Orca Exploration Group Inc.

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