Orca Exploration announces its results for the year ended 31 December 2008

    TORTOLA, British Virgin Islands, April 28 /CNW/ - Orca Exploration Group
Inc ("Orca Exploration" or the "Company") announces its results for the year
ended 31 December 2008.

    Financial and Operating Highlights

    YEARS ENDED 31 DECEMBER                       2008       2007     Change

    Financial (US$ except where otherwise

    Revenue                                     23,782     18,777        27%
    (Loss)/profit before taxation               (7,056)     3,775        n/m
    Operating netback (US$/mcf)                   2.60       2.31        13%
    Cash and cash equivalents                   10,586     16,515       (36%)
    Working capital                              9,727      7,299        33%
    Shareholders' equity                        64,712     71,544       (10%)
    Funds from operations before working
     capital changes                             9,751      8,696        12%
    Funds per share from operations before
     working capital changes - diluted (US$)      0.31       0.29         7%

    Additional Gas sold (MMscf) - industrial     1,475      1,504        (2%)
    Additional Gas sold (MMscf) - power          7,185      6,227        15%
    Average price per mcf (US$) - industrial     11.98       9.31        29%
    Average price per mcf (US$) - power           2.37       2.19         8%

    Gross Recoverable Reserves to end
     of licence (Bcf)
    Proved                                         389        309        26%
    Probable                                       102        165       (38%)
    Proved plus probable                           491        474         4%
    Present Value, discounted at 10%
     (US$ million)
    Proved                                         258        183        41%
    Proved plus probable                           299        255        17%

    President & CEO's Letter to Shareholders

    As Orca Exploration enters 2009, it is in a strong position to weather the
global deterioration in financial markets:

    -   The Company had cash and cash equivalents of approximately US$10
        million as at 31 December 2008 and no outstanding long term

    -   The Company increased funds from operations before working capital
        changes by 12% to US$9.7 million in 2008. This is expected to
        increase in 2009 as sales volumes increase and there is a reduction
        in general and administrative costs.

    -   The terms of the Company's gas sales contracts partially insulate the
        business from the volatility in world oil prices. The prices are
        fixed in the case of sales to the power sector and there are pricing
        floors in place for the majority of the sales volumes to the
        industrial customers.

    -   The Tanzanian economy is not currently expected to be as severely
        impacted by the financial crisis given the minimal credit levels in
        the country. It is expected that the World Bank and other multi-
        laterals will continue to finance infrastructure developments making
        credit available on a timely basis.

    -   During 2008, the Company increased Additional Gas sales volumes by
        12% to an average of 23.7 MMscfd.

    -   The Company's recoverable gross proven and probable (2P) reserves on
        a life of license basis increased by 4% to 491 Bcf in 2008 providing
        Orca with the ability to commence the negotiation of further long
        term power contracts.

    -   The Company has no expenditure or financial obligations to Government
        or stakeholders with respect to its assets, and all investments are
        entirely at Orca's discretion.

    -   In Q1 2009, the Company was given approval by Songas Limited, to
        increase the processing capacity of the gas plant on Songo Songo
        Island by 20 MMscfd from 70 to 90 MMscfd. This will facilitate the
        growth in sales volumes in 2009.

    These factors will enable Orca to continue to grow its Tanzanian gas
business in 2009 and to have the confidence to invest a further US$11 million
primarily in the development of the downstream gas markets.


    The independent reserve evaluator, McDaniel and Associates Consultants
Ltd. ("McDaniel") report of the Songo Songo reserves as at 31 December 2008
demonstrates that the Company's gross proven (1P) and proven and probable (2P)
reserves in Songo Songo to the end of the license period have increased by 26%
to 389 Bcf and 4% to 491 Bcf respectively during 2008. On a life of field
basis the proven and proven and probable reserves have increased by 18% to 433
Bcf and 17% to 649 Bcf respectively. Orca Exploration will look at ways to
accelerate field deliverability such that increased reserves can be assigned
to the proved category, or seek to extend the current license period. Since
production from Songo Songo began in 2004 there has been a 125% increase in
Orca's proven reserves and a 92% increase in the proven and probable reserves
on a life of field basis.
    Based on these reserves and deliverability profiles produced by the
Company and McDaniel, the Company is looking to develop gas markets that can
consume approximately 100 - 120 MMscfd of Additional Gas. To meet these sales
levels, it is assessed that there is a need to drill two new development wells
in the field and install field compression.
    Orca anticipates that reserves can be further increased by the drilling
of the Songo Songo West exploration prospect. In September 2008, McDaniel
evaluated this prospect and assessed it to contain unrisked mean resources of
552 Bcf. This prospect will be drilled as soon as practical given the
availability of capital.


    In Q4 2008, the Company successfully completed the installation of a new
Joule-Thompson valve on each of the gas processing trains and associated
pipework, with no significant disruption of gas supply to Dar es Salaam. In Q1
2009, Lloyds Register certified the two processing trains at 45 MMscfd each
and Songas Limited approved the re-rating to 90 MMscfd. Each of the trains was
tested to 55 MMscfd and Lloyds Register may yet certify the plant at 110
MMscfd after having successfully inspected the gas heat exchangers later in
2009. If this level of processing is confirmed, it is unlikely that
infrastructure capacity would be a constraint until 2011/2012, which allows
sufficient lead time for further processing and pipeline expansion.
    Since 2006, Songas has been looking to expand the gas processing
infrastructure by installing two additional gas processing trains. This
expansion is planned to increase gas processing capacity to a minimum of 160
MMscfd. With re-rating of all four trains to 55 MMscfd, the plant would be
capable of delivering in excess of 200 MMscfd.
    Current delays in the implementation of this expansion involve issues
raised by the energy regulator, EWURA, in approving the economic and
contractual terms. Songas is currently reviewing its position in relation to
the latest order issued by EWURA on 27 February 2009. All Parties are working
towards resolving the remaining issues to allow this to happen. In the event
that the currently planned expansion does not proceed, the Company is
developing a contingency plan to expand the entire system (gas processing and
pipeline) to 200 MMscfd. The Company will look for a third party to finance
this expansion with the objective of it being in place by the end of 2011, in
line with the requirement for additional capacity.


    During 2008, Orca expanded its downstream low pressure gas distribution
system extending it by 7 kilometers to 42 kilometers. Three new customers were
connected during 2008. This brings the total number of customers on line to 20
as at 31 December 2008. In addition, eight new contracts were signed in 2008
and these customers will be connected during the course of 2009. There is now
significant surplus system capacity that can accommodate further growth.
    The most significant industrial contract signed in 2008 was with Tanzania
Portland Cement Company ("TPCC") for the supply of gas to a new US$100 million
kiln at its Wazo Hill cement plant. The supply of gas commenced ahead of
schedule in Q1 2009 at a rate of approximately 2.0 MMscfd. This is forecast to
increase to 4.0 MMscfd by 2010 given the significant growth in cement demand
in Tanzania.


    In June 2008, the Company agreed commercial terms and initialled two long
term power contracts with TANESCO, the owner of the Ubungo power plant, Songas
Limited and the Ministry of Energy and Minerals for the supply of Additional
Gas for power generation. The first contract provides for the supply of gas to
the sixth turbine at the Ubungo power plant to a maximum of approximately  9
MMscfd until July 2024. The second initialled contract covers the supply of
Additional Gas to the remaining gas powered generation currently in Tanzania.
Beginning in November 2010, the take or pay contract volume in this contract
is set at 32 MMscfd through to July 2023, with a maximum daily quantity of 36
    The quantum of the gas sales volumes to the power sector in the short
term under these initialled contracts will depend on the availability of the
561 MWs of Tanzania's hydro generation, the timing of any further increase in
the Songo Songo infrastructure capacity and the level of installed and
operational gas fired generation.
    The same contract price applies to both contracts. It is primarily
composed of a wellhead price and an amount that is paid to Songas for the use
of the gas processing and pipeline infrastructure that is subject to approval
from the energy regulator, EWURA. The wellhead price is fixed at approximately
US$1.95/mcf which will increase at an expected 2% per annum from July 2009.
From July 2012, there will be a step change in the wellhead price to a
forecast US$2.83/mcf which will then increase at 2% per annum. Retail
downstream burner tip price will be the wellhead price plus processing and
transportation tariff. This protocol insulates Orca Exploration from any
increases in the gas processing and pipeline infrastructure tariffs.
    These contracts are currently interlinked with the construction of the
third and fourth gas processing trains. Final signature will take place once
Songas commits to the EPC contract for these trains. In the event that Songas
does not reach agreement with EWURA on the economic and contractual terms, the
contracts will need to be amended to delink them from the gas processing
expansion. In the meantime, gas continues to be supplied to the power plants,
and payment is received on a monthly basis under an interim arrangement.


    Orca's cash flows are not significantly exposed to oil price volatility
as a result of negotiating fixed prices and pricing floors with its customers.
    During 2008, the Company extended the term of six of its largest
contracts accounting for the majority of the industrial gas sales volumes. The
extensions cover an additional five years from the dates that existing
contracts were due to expire with the earliest contract termination date being
September 2014. In return the Company agreed to cap the price of gas to these
customers whilst also incorporating a floor price. This is expected to keep
the price of gas to these industrial customers in the range of US$7.38/mcf to
US$11.49/mcf (increasing at 2% per annum).
    Power contract prices are fixed as per the initialled power contracts.
This also applies to the new gas supply contract with TPCC, the cement
manufacturer at Wazo Hill.


    During 2008, the Company increased Additional Gas sales volumes by 12% to
an average of 23.7 MMscfd. Based on the existing signed industrial contracts
and the initialled power contracts, it is forecast that there will be
approximately 50 MMscfd of Additional Gas sales from 2011. Whilst the
industrial market in Dar es Salaam, as supplied by the low pressure
distribution system, is expected to expand steadily over the next few years,
the majority of the growth required to maximize the current proven and
probable reserves is expected to come from the production of CNG and demand
from the power sector.

    Power sector

    In response to the Tanzanian Power Sector Master Plan, which projects
growth in electricity demand at 7% to 10% per annum or approximately 100 MWs
of new generation per annum until 2016, TANESCO has commenced planning for the
installation of a 200 - 250 MW power plant at Kinyerezi, Dar es Salaam. This
plant is expected to consume a maximum of 50 MMscfd. The negotiation of the
Kinyerezi power plant contract is expected to commence in the second half of
2009, once the initialled contracts are signed. TANESCO has indicated that it
would intend this plant to be operational by 2011/2012. Discussions have been
held between the Governments of Kenya and Tanzania as members of the East
African Community to progress a gas pipeline from Dar es Salaam to Mombasa,
which can take gas in excess of Tanzanian demand, to fulfil existing thermal
fuel generation in Mombasa, and a future 200 MWs of dual fuel new generation.
This market fits well with the potential Songo Songo West prospect.


    During 2008, the Company commenced the construction of CNG facilities in
Dar es Salaam, which include the construction of one "Mother Station"
consisting of a compressor, a vehicle refuelling dispenser and two trailer
filling facilities 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 in Q2 2009 and lead to 0.7 MMscfd of
CNG sales. It is anticipated that this market will expand rapidly to supply
gas to consumers that cannot be cost-effectively connected to Orca's existing
low pressure gas distribution system. This will commence with supply to the
Mikocheni region, followed by a further supply to the city of Morogoro.


    In 2008, Orca decided not to exercise its option to drill two wells in
Exploration Area 5 ("EA5") in Uganda to secure a 50% interest in the license.
The 300 kilometers of 2-D seismic revealed a number of structures, but the
technical analysis indicated a level of risk too high to warrant the costs of
an exploration drilling program. The Company believes that proven reserves can
be acquired at lower cost by acquisition in today's market, rather then by
exploration, which is still a high cost activity. As part of the financial
settlement with Tower Resources Plc, it was agreed that if any discovery in
EA5 is found to be commercial, Orca could recover, out of the cost recovery
pool, up to US$7.5 million that was spent on the seismic acquisition.


    Orca Exploration's 2008 revenues increased 27% to US$23.8 million
compared to 2007. Funds from operations before working capital changes
increased 12% to US$9.7 million.
    The Company's 2008 profitability was impacted by a US$9.5 million write
down of the costs associated with the Ugandan seismic acquisition. If this one
off item is removed, the Company made a profit before taxation of US$2.5
million. In addition, profitability and cash flows were impacted by higher
general and administrative costs. Approximately US$4.7 million was incurred on
legal and marketing costs in 2008 in respect of an arbitration claim initiated
by Orca Exploration and the negotiation of the initialled long term power
contracts. Some of these costs will continue in 2009, but the intention is to
reduce the general and administrative cash costs by 20% or approximately
US$2.5 million in 2009 compared with 2008.


    Orca Exploration enters 2009 in a strong financial, operating and
marketing position. Despite economic turmoil in world financial markets the
Company is expected to continue to bolster its cash reserves in 2009 through
the development of its Tanzanian asset.
    During 2009, the Company will stay on course to build markets in Tanzania
so as to maximize the existing proven and probable reserves. This will

    -   Planning a two-well development drilling program in 2011 and 2012 to
        increase deliverability to meet the forecast sales growth;

    -   Re-rating the capacity of the Songo Songo gas processing plant to 110

    -   Preparing for the expansion of the high pressure gas processing and
        pipeline system to process and transport a peak of 200 MMscfd
        (including Protected Gas);

    -   Executing the initialled long term gas supply and related agreements;

    -   Commencing the negotiation of a contract with TANESCO to supply
        between 40 and 50 MMscfd of gas to the proposed Kinyerezi power

    -   Establishing and expanding the CNG market in Tanzania;

    -   Further progressing potential export potential to Kenya.

    Over the course of 2009, management's first priority will be to focus on
successfully executing its base business plan in a manner which avoids
financial risk. However we have not lost sight of the longer term goal to grow
Orca's assets beyond our existing base. The Company still intends to drill the
relatively low risk Songo Songo West exploration prospect as soon as
practical. In addition, Orca will continue to monitor potentially suitable
asset acquisition opportunities that may arise as result of turmoil in world
capital markets. These will focus on proven reserves rather than exploration.
    In these uncertain times, Orca appreciates the confidence and support of
its loyal shareholders. Management remains very optimistic about your
Company's prospects in Tanzania and will work hard to demonstrate the inherent
value that is present in your Company's assets and operations.

    Consolidated Income Statement

    (thousands of US dollars except per share amounts)       2008       2007

    Revenue                                                23,782     18,777
    Cost of sales
    Production and distribution expenses                   (1,477)    (1,193)
    Depletion expense                                      (4,716)    (4,476)
    Impairment of exploration and evaluation assets        (9,520)         -
                                                            8,069     13,108

    Administrative expenses                               (14,686)   (10,708)
    Net financing income/(charges)                           (439)     1,375
    (Loss)/profit before taxation                          (7,056)     3,775
    Taxation                                               (2,467)    (2,030)
    (Loss)/profit after taxation                           (9,523)     1,745
    (Loss)/profit per share
    Basic and diluted (US$)                                 (0.32)      0.06

    Consolidated Balance Sheet

    (thousands of US dollars)                                2008       2007
    Current assets
    Cash and cash equivalents                              10,586     16,515
    Trade and other receivables                            13,196      8,236
                                                           23,782     24,751

    Exploration and evaluation assets                         648      6,881
    Property, plant and equipment                          60,818     61,157
                                                           61,466     68,038
                                                           85,248     92,789

    Current liabilities
    Trade and other payables                               14,055     17,452
    Non current liabilities
    Deferred income taxes                                   5,510      3,205
    Deferred additional profits tax                           971        588
                                                           20,536     21,245

    Capital stock                                          66,537     66,538
    Capital reserve                                         3,715      1,023
    Accumulated (loss)/income                              (5,540)     3,983
                                                           64,712     71,544
                                                           85,248     92,789

    Consolidated Statements of Cash Flows

    (thousands of US dollars)                                2008       2007

    Profit/(loss) after taxation                           (9,523)     1,745

    Adjustment for
      Depletion and depreciation                            4,792      4,631
      Impairment of exploration and evaluation assets       9,520          -
      Stock-based compensation                              2,419      1,062
      Deferred income taxes                                 2,305      1,976
      Deferred additional profits tax                         383        324
      Interest income                                        (145)      (628)
      Foreign exchange gain                                     -       (414)
                                                            9,751      8,696
    Increase in trade and other receivables                (4,960)    (3,961)
    Increase in trade and other payables                      394      6,032
    Net cash flows from operating activities                5,185     10,767
    Exploration and evaluation expenditures                (3,014)    (6,322)
    Property, plant and equipment expenditures             (4,453)   (46,836)
    Interest income                                           145        628
    (Decrease)/increase in trade and other payables        (3,791)     6,897
    Net cash used in investing activities                 (11,113)   (45,633)
    Normal course issuer bid                                   (1)      (220)
    Shares issued                                               -     30,366
    Foreign exchange gain                                       -        414
    Proceeds from exercise of options                           -        143
    Net cash flow from financing activities                    (1)    30,703
    Decrease in cash and cash equivalents                  (5,929)    (4,163)
    Cash and cash equivalents at the beginning
     of the year                                           16,515     20,678
    Cash and cash equivalents at the end of the year       10,586     16,515

    Statement of Changes in Shareholders' Equity

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

    Balance as at 1 January 2007     34,469      1,182      2,238     37,889
    Shares issued                    31,971       (675)         -     31,296
    Options exercised                   143          -          -        143
    Stock-based compensation              -        691          -        691
    Normal course issuer bid            (45)      (175)         -       (220)
    Profit for the year                   -          -      1,745      1,745
    Balance as at 31 December 2007   66,538      1,023      3,983     71,544

    Shares issued                         -          -          -          -
    Options exercised                     -          -          -          -
    Stock-based compensation              -      2,692          -      2,692
    Normal course issuer bid             (1)         -          -         (1)
    Loss for the year                     -          -     (9,523)    (9,523)
    Balance as at 31 December 2008   66,537      3,715     (5,540)    64,712

    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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Orca Exploration Group Inc.

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