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THE WOODLANDS, TX, Feb. 28, 2012 /CNW/ - Porto Energy Corp., ("Porto" or the "Company") (TSXV:PEC), a company focused on oil and gas exploration, appraisal and development in Portugal, today announced its financial results for the quarter ended November 30, 2011. All amounts are stated in US dollars unless otherwise noted by C$ for Canadian dollars or € for Euros.
Selected Recent Highlights
- Completed approximately 1600km2 of 3D Seismic, including 240 km2 3-D seismic shoot over the Montejunto Anticline in the Torres Vedras Concession (97.5% working interest);
- Completed 82% of the Company's work program commitments; and
- Entered into a Memorandum of Understanding ("MOU") with Sorgenia International B.V., Netherlands ("Sorgenia"), and Rohöl-Aufsuchungs Aktiengesellschaft, Austria ("RAG") to jointly evaluate the unconventional resource potential of the Lower Jurassic (Lias) stratigraphic interval within a portion of Porto's concessions in Portugal.
"We continue to advance our understanding of Portugal's geology through a combination of initiatives including the use of 3D seismic," said Joseph Ash, President and CEO of Porto. "During the quarter, we entered into a MOU with potential JV partners to jointly evaluate the unconventional resource potential of the Lias stratigraphic interval and continue to work toward signing a definitive agreement. We view securing JV partners for key assets as an important piece of overall development strategy going forward."
Revenue during the three months ended November 30, 2011, was $9,229 as compared to $1,221 for the corresponding period ended November 30, 2010. Revenue is composed primarily of interest income from cash on hand. Whereas the Company has not yet established commercial oil and gas production from the Concessions, its sources of revenue are not of a recurring consistent nature.
General and Administrative Expense ("G&A")
G&A expense increased by $104,915 from $861,791 for the three months ended November 30, 2010 to $966,706 for the corresponding period in 2011. The increase in G&A expense for the three months ended November 30, 2011 was primarily a result of hiring additional management and operations staff, higher rent and office expenses from new office facilities, and increased insurance costs as a result of the increased corporate and operational activity of the Company compared to the prior year periods when it was focused on conserving cash. The three months ended November 30, 2010, includes a one-time charge of $246,622 in severance payments to former employees.
Share-based payments expense for the three months ended November 30, 2011 was $380,339, compared with $78,564 for the three months ended November 30, 2010. During the year ended August 31, 2011, a total of 11,600,000 options to acquire shares of common stock were issued to officers, directors and employees in accordance with the Company's long-term incentive plan subject to vesting requirements and 1,548,208 options expired due to employment terminations. In December 2011, the Company granted options to acquire up to 3,110,000 Common Shares of Porto, of which 2,110,000 of which were granted to directors and officers of Porto. Each grant of options is for five year term, expiring on December 14, 2016. The options vest over two years (one-half immediately and one-half on the first anniversary of the grant date). The options are exercisable at a price of $0.105 per Common Share. There are now options outstanding to purchase a total of 14,660,000 Common Shares of Porto.
Foreign Currency Translation
Foreign currency translation gains for the three months ended November 30, 2011, were $69,689 in comparison to translation gains of $11,400 in the comparative period for 2010. The foreign currency unrealized gains and losses reflect the changing value of the Canadian dollar/Euro versus the US dollar at the respective period ends, in which the Company maintains its accounts.
Depreciation expense of $9,675 was recorded during the three months ended November 30, 2011, compared with $2,928 during the comparative period in 2010. These amounts are largely due to the depreciation of furniture and fixtures.
Net Loss Before Income Taxes and Gain on Settlement of Debt
The Company recorded net losses for the three months ended November 30, 2011 of $1,278,336, compared with $930,629 for the comparative period in 2010. As the Company is in the exploration phase of operations, there are currently no oil and natural gas producing properties generating revenues. The Company's net losses for these periods were primarily generated from G&A expenses including salaries, office costs and travel costs in addition to professional fees and share-based payments. The fair value of the share-based payments was a non-cash expense in the periods.
The Company recorded a net income tax benefit of $14,029 on a net loss before income tax of $1,278,336 for the three months ended November 30, 2011. During the corresponding period ended November 30, 2010, the Company recorded net income tax expense of $365,493, on a net loss before income tax of $930,629. The difference between the effective tax rate recognized and the blended statutory rates of its various taxing jurisdictions in which the Company operates is primarily due to it applying a valuation allowance for the full amount of its gross future tax asset as it believes, based on the weight of available evidence, that it is more likely than not that the future tax asset will not be realized prior to the expiration of net operating loss carryforwards in various amounts at 2028 through 2031. Net operating loss carryforwards as of November 30, 2011 were approximately $27.5 million.
Gain on Settlement of Debt Expense
The Company did not record any gain on the settlement of deb for the three months ended November 30, 2011 and 2010, respectively. During the second quarter ended February 28, 2011, under the terms of the debt settlement agreement of December 2009, the anti-dilution rights, including the right to put 1,400,000 common shares of the Company for $450,000, were terminated. As a result, the Company recorded a gain on the settlement of debt of $469,279 after translation adjustments. The prior period gain was a result of settling outstanding accounts payable and accrued liabilities at discounts to the recorded value through the payment of cash and the issuance of stock in the prior period when the Company was in the process of implementing its reorganization.
Comprehensive Income (Loss)
The Company recorded a comprehensive loss for the three months ended November 30, 2011 of $1,264,307, as compared to a comprehensive loss of $1,296,122 for the three months ended November 30, 2010. The difference between net loss and comprehensive loss is comprised of the non-recurring gain on the settlement of debt and provisions for income taxes.
Operational Review and Outlook
Torres Vedras-3 (97.5% working interest)
The SPC-2, the second well in the Company's program to explore the Jurassic Reef prospect, was spud on August 19, 2011 and reached total measured depth at 1,957 meters on September 9, 2011. The SPC-2 targeted a well defined four way closure trap in the Jurassic Reef as delineated by the Company's 120 km2 3D seismic survey of this area. The well had live and dead oil shows while drilling and good reservoir properties in several limestone and dolomite intervals. A porous interval of dolomite from 1,625 meters to 1,679 meters indicated pay on a petrophysical evaluation of the open hole logs, however, analysis of sidewall cores taken over the interval and additional log evaluation was required to determine if the logged pay over this interval was commercial. Following completion of the analysis of the gathered data the Company determined that the well was gas charged but the presence of a significant amount of carbon dioxide would make it uneconomic to produce. On that basis, the Company elected to plug and abandon the well. Following this result the Company now expects to take time to evaluate the wide array of information gathered on this prospect before making a decision with respect to next steps of its reef exploration program on the western portion of the Torres Vedras concession.
Aljubarrota-4 (100% working interest)
The Company commenced re-entry operations on the Alj-4 well on the Aljubarrota-3 concession in central Portugal in May 2011. The Alj-4 well was originally drilled in 2005 to a depth of 2,110 meters as a direct offset to the Company's Alj-2 well that discovered 366 BCF of contingent gas resources in a Jurassic fractured Brenha carbonate formation where it was temporarily abandoned above the gas accumulation due to operational constraints. The Company deepened the Alj-4 well by 450 meters to approximately 2,550 meters and recovered approximately 65.0 meters of conventional core and approximately 430 meters of open hole logs in the Jurassic Brenha gas reservoir. Drilling operations, including acquisition of 60-70 meters of conventional core, took approximately one month. Upon completing the core analysis and concluding initial drilling operations on the SPC-1 and SPC-2 wells in September 2011, the Company then re-entered the well. The well encountered promising reservoir properties and gas shows. However, it was not able to sustain economic production levels due to water encroachment and, therefore, the Company elected to plug and abandon the well. The water had high concentrations of salt, approximately 175 thousand parts-per-million, indicating the origin of the water encroachment is most likely the salt pack below the bottom of the well and is being introduced by a nearby fault that is approximately 300 meters away. The re-entry encountered normal pressures as well as fractured and matrix porosity identified in the core analysis of the bottom ten meters of the Basal Brenha interval above 2.0%, which is similar when compared to analogous wells. This porosity, however, is also the mechanism that is allowing water to penetrate into the fractures and ultimately is preventing sustained gas production. As a result, more interpretation and analysis is required to further the Company's understanding of the play and the basin in general to see if it can mitigate the risk profile and identify a suitable location for a commercially viable well. Management estimates that the lack of commercial gas rates in the ALJ-4 will reduce the contingent gas resources assigned to the Basal Brenha by approximately 80 billion cubic feet ("BCF"). However, management estimates that the play still has approximately 270 BCF of contingent gas resources remaining in the Upper Brenha and additional resources in the Basal Brenha if the water coming up the fault near the ALJ-2 and ALJ-4 wells can be eliminated. Additional work will be performed to understand this tight gas play in order to commercialize the contingent resources.
Prior to the completion of the Basal Brenha, the Company confirmed that the Upper Brenha tight gas section is water free but wellbore limitations prevented completion of this interval.
Subsequent to the ALJ-4 well, the Company elected to temporarily suspend drilling operations pending the completion of ongoing seismic and geophysical analysis, discussed in further detail below.
Seismic Acquisition & Aeromagnetic Survey
Cabo Mondego-2 and São Pedro de Muel-2 (100% working interest)
In early September 2011, the Company completed the acquisition of 1,050 km2 of 3D seismic data over portions of the Cabo Mondego-2 and São Pedro de Muel-2 concessions offshore Portugal using towed streamer arrays. The seismic acquisition covered the Monte Real Platform Trend which is expected to define exploration well locations in an attempt to attract JV partners. Processing and interpretation of the data is expected to be completed during the second quarter of 2012.
Basin-wide Aeromagnetic Survey
The Company completed a 25,000 km2 aeromagnetic data survey in July 2011 and processing was completed in December 2011. The Survey is helping management to locate sedimentary basins, inferring the location of the thickest sedimentary section and delineate the boundaries of the Lusitanian Basin in order to help management understand the regional geology to economically focus exploration efforts.
Torres Vedras-3 (97.5% working interest)
In June 2011, the Company began shooting a 240 km² 3-D seismic program over the Montejunto Anticline on the Torres Vedras-3 Concession that includes the Lapaduços and Cruz de Pedra prospects. The program targeted the Shallow Jurassic Carbonate, Jurassic Reefs and Presalt Silves and is designed to high-grade prospects, further evaluate the Jurassic Reef Trend and seal potential and define locations for future wells. Acquisition was completed in January 2012. The data from the Montejunto seismic program will be processed and interpreted with results expected by mid to early 2012. The Company intends to use the data from this program, as well as data from the 24,000 km2 aeromagnetic data survey completed in July 2011, to identify drill sites targeting multiple stacked pay intervals including Jurassic Reefs on the eastern side of the basin, the pre-salt, as well as additional shallower targets.
This fourth and final 3-D program has, in total, given the Company more than 1,600 km2 of new data on its five concessions and with its completion, fulfilled its seismic obligation under its work program commitments to the Portuguese government.
Pre-Salt Prospect (100% working interest)
Using the recently completed pre-stack time migration processing from the 160 km2 Aljubarrota 3-D seismic survey completed last year, a large Triassic four-way closure has been identified within the pre-salt sandstones beneath the gas charged Lower Jurassic Brenha Formation. The crest of this structure is estimated to be 800 metres updip of gas shows within the Triassic sandstones in the Company's Brenha gas discovery, the ALJ-2. The entire prospect and surrounding area appears to have a thick salt top seal imaged from the seismic data set. Additional shallower targets have also been identified within the mapped four-way closure and the Company is actively seeking a JV partner to participate in a 3,000 metre pre-salt well. Porto intends to mobilize the Deutag rig, currently stacked at the Company's storage facility, and spud a pre-salt well before June 1, 2012 pending funding requirements and JV partnering efforts.
Memorandum of Understanding
In late November 2011, Porto entered into a Memorandum of Understanding with Sorgenia International B.V., Netherlands ("Sorgenia"), and Rohöl-Aufsuchungs Aktiengesellschaft, Austria ("RAG") to jointly evaluate the unconventional resource potential of the Lower Jurassic (Lias) stratigraphic interval within a portion of Porto's concessions in Portugal. The parties are working toward completing a definitive agreement covering a three phase work program to jointly evaluate approximately 450,000 acres and the agreement is close to being finished. The Lias stratigraphic interval is being pursued as an unconventional resource throughout Europe, and Mohave Oil and Gas, a wholly-owned subsidiary of the Company, has applied for two new concessions onshore Portugal in an effort to further consolidate its holdings that are prospective for the Lias interval and is now waiting for formal approval of the two new concessions from the Portuguese Government. The Company continues to pursue additional joint venture partners for the remaining portions of the Lias unconventional resources.
The Company has discovered reservoir, porosity and permeability throughout the basin. It is now in search of geologic traps which provide better chances of finding hydrocarbons. From the preliminary data the Company is getting from the 24,000 km2 aeromagnetic data survey completed in July 2011 along with the 3-D seismic data from the Montejunto seismic acquisition project, combined with the pre-stack processing of the Presalt under the Brenha, management believes it would be beneficial to completely interpret and integrate the data from each of these studies before moving forward with its next drilling decisions. Specifically, the Company will analyze all of this data to further de-risk future drilling decisions and determine an optimum location to spud a Presalt well once the analysis process is complete.
On that basis, Porto elected to temporarily suspend drilling operations pending the completion of ongoing seismic and geophysical analysis. In December 2011, the Company successfully negotiated modifications to its drilling contract with Deutag and is currently stacking the rig at a Porto storage facility. The Company will retain the rig at a reduced rate. Upon the resumption of drilling operations, the Company expects to carry out the remaining term of the original Deutag contract effective May 2011 with an option to extend past the original maturity date.
Temporary suspension will also provide further time for the Company to find and secure additional JV partners interested in the final interpretations of the geological data.
To view the Company's Quarter Ended November 30, 2011 Consolidated Financial Statements, related Notes to Consolidated Financial Statements, and Management's Discussion and Analysis, please see the Company's interim filings which will be available on www.sedar.com and at www.portoenergy.com.
About Porto Energy Corp.
Porto Energy Corp. is an international oil and gas company engaged in the exploration of crude oil and natural gas in Portugal, including the appraisal of a gas discovery. Through its wholly owned subsidiary, Mohave Oil And Gas Corporation (a Texas corporation with branch offices in Portugal), the Company holds working interests in five concessions in Portugal's Lusitanian Basin totaling 1,444,152 net acres or 5,844 km2. Through its exploration efforts to date, the Company has identified seven major exploration trends over its concessions and generated more than 45 prospects and leads. Porto Energy's shares trade on the TSX Venture Exchange under the ticker symbol "PEC". For more information on Porto Energy visit www.portoenergy.com.
Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable because of one or more contingencies. The contingent resources shown are contingent upon demonstration of the economic viability of the projects. Commercial flow rate testing and documentation of development plans will provide further evidence of economic viability of these projects. If these contingencies are resolved, some portion of the contingent resources estimated may be reclassified as reserves. There is no certainty that it will be commercially viable to produce any portion of the contingent resources.
This press release contains certain forward-looking statements. These statements relate to future events or the Company's future performance. All statements other than statements of historical fact are forward-looking statements. The use of any of the words "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "should", "believe", "predict" and "potential" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. No assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. These forward-looking statements are made as of the date of this press release and the Company does not undertake to update any forward-looking statements that are contained in this press release, except in accordance with applicable securities laws.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
For further information:
Heath Cleaver - Chief Financial Officer