THE WOODLANDS, TX, April 30, 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 three and six month periods ended February 29, 2012. All amounts are stated in US dollars unless otherwise noted by C$ for Canadian dollars or € for Euros.
Selected Recent Highlights
- Completed approximately 1,600km2 of 3D Seismic, including 240 km2 3-D seismic shoot over the Montejunto Anticline in the Torres Vedras Concession to fulfill work program commitment (97.5% working interest);
- Completed 82% of the Company's work program commitments; and
- Concluded a definitive agreement 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 make progress with our JV initiatives, entering into a definitive agreement for the evaluation of the Lias stratigraphic interval, and continuing to evaluate a number of additional opportunities," said Joseph Ash, President and CEO of Porto. "We continue to work toward the completion of the processing and interpretation of our recently completed seismic programs, which, in conjunction with other geophysical work will inform our next round of drilling decisions and further support additional JV initiatives."
Revenue during the three months ended February 29, 2012, was $4,952 as compared to $4,910 for the corresponding period ended February 28, 2011. Revenue during the six months ended February 29, 2012, was $14,181 as compared to $6,131 for the corresponding six month period ended February 28, 2011. 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 $222,537 from $1,329,523 for the three months ended February 28, 2011 to $1,552,060 for the corresponding period in 2012. The increase in G&A expense for the three months ended February 29, 2012 was primarily a result of increased professional fees, increased consulting fees, higher rent and office expenses from new office facilities, and increased insurance costs, partially offset by decreased salaries and benefits. This increase is a result of the increased corporate and operational activity of the Company compared to the prior year period. G&A expense increased by $327,452 from $2,191,314 for the six months ended February 28, 2011 to $2,518,766 for the corresponding six months period in 2012. The increase in G&A expense for the six months ended February 29, 2012 was primarily due to the above reasons but also the result of hiring additional management and operations staff. The six months ended February 28, 2011, includes a one-time charge of $246,622 in severance payments to former employees.
Share-based payments expense for the three months ended February 29, 2012 was $614,692, compared to $854,102 for the three months ended February 28, 2011. Share-based payments expense for the six months ended February 29, 2012 was $995,031, compared to $932,666 for the six months ended February 28, 2011. 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.
Finance expense for the three months ended February 29, 2012, was $(125) as compared to $1,218 for the comparative period in 2011. Finance expense for the six months ended February 29, 2012, was $409 as compared to $1,185 for the comparative period in 2011. Finance expense primarily includes the non-cash accretion of decommissioning obligations for future abandonment costs for prior wells drilled in Portugal for the period. Interest expense for 2011 also reflects interest accrued on outstanding payables.
Foreign Currency Translation
Foreign currency translation losses for the three months ended February 29, 2012, were $6,107 in comparison to translation gains of $50,411 in the comparative period for 2011. Foreign currency translation gains for the six months ended February 29, 2012, were $63,582 in comparison to translation gains of $61,811 in the comparative period for 2011. The foreign currency unrealized gains and losses reflect the changing value of the Canadian dollar and Euro versus the US dollar at the respective period ends, in which the Company maintains its accounts.
Depreciation expense of $9,051 was recorded during the three months ended February 29, 2012, as compared to $3,865 during the comparative period in 2011. Depreciation expense of $18,726 was recorded during the six months ended February 29, 2012, as compared to $6,793 during the comparative period in 2011. These amounts are largely due to the depreciation of furniture and fixtures.
Impairment on Exploration and Evaluation Assets
An impairment of $23,594,000 was recorded for the three and six months ended February 29, 2012 as a result of the impairment review on the carrying value of the exploration and evaluation assets as of February 29, 2012. The impairment review was conducted by comparing the carrying value of the Carbonates cash generating unit assets to the estimated recoverable amount of these assets using value in use. Value in use is determined based on a third party evaluation report of our resources using a discount rate of 16%.
Net Loss Before Income Taxes and Gain on Settlement of Debt
The Company recorded net losses for the three months ended February 29, 2012 of $25,770,833, as compared to $2,133,387 for the comparative period in 2011. The Company recorded net losses for the six months ended February 29, 2012 of $27,049,169, as compared to $3,064,016 for the comparative period in 2011. As the Company is in the exploration phase of operations, there are currently no oil and natural gas producing properties generating revenues. The net loss for the periods ended 2012 were primarily due to the impairment of exploration and evaluation assets. The Company's net losses for each of these periods were impacted 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 these periods.
The Company recorded a net income tax expense of $78,576 on a net loss before income tax of $25,770,833 for the three months ended February 29, 2012. During the corresponding period ended February 28, 2011, the Company recorded net income tax expense of $1,034,250, on a net loss before income tax of $2,133,387. The Company recorded a net income tax expense of $64,547 on a net loss before income tax of $27,049,169 for the six months ended February 29, 2012. During the corresponding period ended February 28, 2011, the Company recorded net income tax expense of $1,399,743, on a net loss before income tax of $3,064,016. 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 February 29, 2012 were approximately $29.7 million.
Gain on Settlement of Debt Expense
The Company did not record any gain on the settlement of debt for the three and six months ended February 29, 2012 compared to a gain of $469,279 for the three months and six months ended February 28, 2011. 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 February 29, 2012 of $25,849,409, as compared to a comprehensive loss of $2,698,358 for the three months ended February 28, 2011. The Company recorded a comprehensive loss for the six months ended February 29, 2012 of $27,113,716, as compared to a comprehensive loss of $3,994,480 for the six months ended February 28, 2011. The difference between net loss and comprehensive loss is comprised of the non-recurring gain on the settlement of debt and the 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 3-D 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. Any future focus will likely shift to reef complexes identified by the 240 km2 Montejunto 3-D seismic acquisition along the eastern part 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.
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 3-D 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 24,000 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 further the Company's understanding of the regional geology and focus exploration efforts economically.
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 Pre-salt 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 - July 2011 aeromagnetic data survey, 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. At this time, the Company does not intend to acquire additional seismic.
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 in 2011, 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 entire prospect and surrounding area appears to have a thick salt top seal imaged from the seismic data set. The most optimum drilling location has been identified and the drill site has been secured in anticipation of recommencing drilling operations. 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 February 2012, the Company entered into a definitive joint venture agreement with Sorgenia International B.V., Netherlands ("Sorgenia"), and Rohöl-Aufsuchungs Aktiengesellschaft, Austria ("RAG"), (together the ("Farm-in Partners"), to jointly evaluate the unconventional resource potential of the Lower Jurassic (Lias) stratigraphic interval within Porto's concessions in Portugal. Porto will retain operatorship of the Company's concessions and the joint venture. The area to be jointly evaluated is approximately 450,000 acres. The Lias stratigraphic interval is being pursued as an unconventional resource throughout Europe.
Under the terms of the agreement, Sorgenia and RAG will each initially secure a 32.33% working interest specifically in the Lias interval in exchange for their participation in the first phase of a three phased work program. Porto will not be required to fund the joint venture until the third phase unless phase one and two encounter cost overruns as discussed below. The first phase, which must be completed by December 31, 2012, is focused on developing a comprehensive geophysical and geochemical analysis of the Lias interval. The Farm-in Partners will each fund 50% of the overall costs of the first phase work program with total program costs not to exceed US$1.0 million. The second phase will begin immediately following the first and must be completed by August 1, 2014, but is subject to extension. Upon entry into the second phase, the Farm-in Partners will each be deemed to have earned a 32.33% interest in the Lias interval. Second phase activities include the drilling of two deep wells and additional geochemical and geophysical analysis. The costs associated with the two wells will be shared equally between the Farm-in Partners capped at a gross cost of US$10.0 million, net of mobilization and demobilization costs. Other costs associated with the phase two work program will be shared according to the working interest held by each of the parties. Activities under the phase three work program, which is expected to begin immediately following completion of the phase two work program, include the submission of a five-year general development and production plan with further development and production initiatives to follow as necessary. The costs for the third phase work program will be borne by all parties according to their working interest in the Lias interval.
Letter of Intent
In March 2012, the Company signed a non-binding Letter of Intent ("LOI") with an undisclosed party, (the "Partner"), whereby the Partner will farm in to Porto's rights on certain of the Company's concessions onshore Portugal, including the pre-salt potential on the Aljubarrota-3 concession. Under the terms of the LOI, the Partner will earn a 50% interest in the concessions, comprising approximately 600,000 gross acres (300,000 net to the Partner), in exchange for an aggregate farm-in commitment of up to US$23.0 million in payments and carried costs. The LOI is subject to customary break fees and conditions precedent.
The Company has discovered reservoir, porosity and permeability throughout the basin. It is now in search of geologic traps that provide improved chances of finding hydrocarbons. From the preliminary data the Company is getting from the July 2011 aeromagnetic data survey along with the 3-D seismic data from the Montejunto seismic acquisition project, combined with the pre-stack processing of the Pre-salt 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 once the analysis process is complete.
On that basis, Porto elected to temporarily suspend drilling operations in December 2011, pending the completion of ongoing seismic and geophysical analysis. 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. The Company continues to stack the drilling rig at its storage facility.
To view the Company's Quarter Ended February 29, 2012 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